Fundamentals of Economics
An oligopoly is a market structure in which a small number of firms dominate the market. The firms in an oligopoly can either cooperate with each other, forming a cartel, or compete against each other. Oligopolies are characterized by high barriers to entry, which make it difficult for new firms to enter the market. This gives the existing firms in the market a significant advantage over new entrants. Oligopolies can exist in many different industries, such as telecommunications, airlines, and automobiles.
One of the most famous examples of an oligopoly is the soft drink industry. Coca-Cola and PepsiCo dominate the market and have a significant advantage over any new entrants. Since the soft drink industry is an oligopoly, the two firms have to make decisions that take into account the actions of their competitor. For example, if Coca-Cola decided to lower its prices, PepsiCo would have to decide whether to match the lower prices or keep its prices the same.
Oligopolies can lead to higher prices and reduced output, as the firms in the market have the power to set prices and restrict output. However, oligopolies can also lead to innovation and investment, as the firms in the market have the funds to invest in research and development. Overall, oligopolies are complex market structures that can have both positive and negative effects on consumers and the economy as a whole.
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