Oligopoly

Oligopoly, a market dominated by a few producers or suppliers. It falls somewhere between a situation where there is what is known as perfect competition and one in which there is a monopoly, domination of the market by one producer or supplier. There are a number of ways in which an oligopoly may operate. At one extreme oligopolistic markets may, at least at certain times, be highly competitive. At the other extreme the members of the oligopoly may collude by fixing prices and/or attempting to control the market in other ways, thus producing an outcome that is similar to the one that would occur if a monopoly existed. Such practices are in many instances contrary to national competition or anti-trust legislation. They also depend on all the colluders playing by the rules they have fixed.

In oligopolistic markets, such as petrol sales and detergent, it is common for there to be long periods of price stability, with producers competing by advertising the advantages of their product (it washes whiter, for example), and by special offers such as vouchers that may be exchanged for goods if enough are collected. In coming to a decision on, say, prices, members of an oligopoly often resort to game theory. The game involves anticipating what the competition will do in certain circumstances and planning one's own actions accordingly with the aim of achieving the maximum pay-off. To a large extent success in the game depends on the players behaving rationally. In a zero-sum game, the total pay-off is fixed, so whatever one player gains, others must lose. In a non-zero-sum game one player's decision may benefit all players.