Oligopoly Market Structure

Market structure is defined by the number of sellers in the market, the buying and selling strength of these sellers and their ability to affect prices, the characteristics of the competition, the differentiation or otherwise of the products, and ease of entry into, or exit from, the marketplace.

There are four types of market structure:

• Perfect competition;

• Monopolistic competition;

• Oligopoly; and,

• Monopoly.

Perfect competition is characterised thus:

There are many sellers, with no one organisation dominating the market, of identical products, selling at a price that is dictated by the market. There are many buyers in the market who have perfect knowledge of the products and the alternatives available and there is little or no differentiation between different products offered by different sellers.

There are no

Travelodge, Holiday Inn and Starbucks.

Oligopoly is defined thus:

There are a small number of large organisations dominating the market and each of these firms controls a large part of the market by producing differentiated products.

These organisations must take into account the actions and reactions of their competitors when making business decisions – this is known as collusive oligopoly or collusion. These firms are interdependent and keep prices inelastic – if one organisation was to raise its prices then it would lose customers to its rivals and if it was to lower its prices then its competitors would follow suit so neither strategy would increase revenue. OPEC is one such organisation that restricts the supply of oil to keep the price high.

Entry into the market is prohibitive because of, say, government restrictions, high start-up costs or resource ownership such as in mining or drilling.

Monopoly is defined