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Concept
Oligopoly
Summary
An oligopoly () is a market in which control over an industry lies in the hands of a few large sellers who own a dominant share of the market. Oligopolistic markets have homogenous products, few market participants, and inelastic demand for the products in those industries. As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function. Firms in an oligopoly are also mutually interdependent, as any action by one firm is expected to affect other firms in the market and evoke a reaction or consequential action. As a result, firms in oligopolistic markets often resort to collusion as means of maximising profits.
Nonetheless, in the presence of fierce competition among market participants, oligopolies may develop without collusion. This is a situation similar to perfect competition, where oligopolists have their own market structure. In this situation, each company in the oligopoly has a large share in the industry and plays a pivotal, unique role.
Many jurisdictions deem collusion to be illegal as it violates competition laws and is regarded as anti-competition behaviour. The EU competition law in Europe prohibits anti-competitive practices such as price-fixing and competitors manipulating market supply and trade. In the US, the United States Department of Justice Antitrust Division and the Federal Trade Commission are tasked with stopping collusion. In Australia, the Federal Competition and Consumer Act 2010 has details the prohibition and regulation of anti-competitive agreements and practices. Although aggressive, these laws typically only apply when firms engage in formal collusion, such as cartels. Corporations may often thus evade legal consequences through tacit collusion, as collusion can only be proven through direct communication between companies.
Within post-socialist economies, oligopolies may be particularly pronounced. For example in Armenia, where business elites enjoy oligopoly, 19% of the whole economy is monopolized, making it the most monopolized country in the region.
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