Understanding Oligopolies

An Oligopoly is basically an industry that is controlled by two or more companies. These companies between them have such a massive share of the market that they can effectively run their competition into the ground, and control the industry between them. It is fairly similar to a monopoly in the way that it usually works, although monopolies themselves are illegal in a lot of business sectors.

Oligopolies exist in many of the worlds different industries and retail sectors. For example the oil companies, or diamond manufacturers are examples of oligopolies. If any one company in these cases had over 40% of the market share then they would be in violation of the monopoly laws, and would likely have to split into two smaller companies. But because there are several big companies in a oligopoly market, they can have pretty much all of the market share between them.

Many Oligopoly companies tend to work together to make themselves more profit because there is no competition to oppose them. For example the controllers of the diamond industry keep the price of their products artificially high compared to how rare they actually are. Diamonds are actually fairly common, but you need a mine to get to them. The prices are kept high as an agreement between the controllers of the mines so that they can continue to make as much profit from us as possible.

Many people tend to think that oligopolies are better then monopolies. However they can actually potentially be a lot worse. As little competition that there is in a monopolized market, they can usually provide different products and can compete to an extent in terms of price. Because the monopoly limit is usually 40 or 50% of a given market, this means that there is at least 50% of the market open to, and controlled by, smaller competitors. This helps to keep the prices low to the public, as the larger company either tries to out price the competition or the smaller companies can offer unique products.