What helps enable an oligopoly to form within a market?
An oligopoly is a group of companies that have a dominant share of the market for a particular product or service. These companies may have high barriers to entry that make it difficult for new businesses to enter the market. These barriers can include government regulations, patents, and other intellectual property rights. In addition, the companies that make up an oligopoly may have significant influence over the price and supply of the products they produce or sell.
The advantages of an oligopoly include lower prices for consumers and higher profits for businesses. However, the disadvantages of an oligopoly include lack of innovation and a limited pool of goods and services to choose from.
Companies in an oligopoly often compete with each other on non-price competition, such as branding and quality. Additionally, oligopolies can often form when there are high barriers to entering the industry. These barriers can include the cost of acquiring land and labor, as well as government regulations.
One way to break up an oligopoly is for a small company to offer a unique product that the large companies don’t have. This strategy is called a blue ocean strategy and has been successful for companies such as Tesla in the automobile industry.
Another way to break up an oligopoly involves companies colluding with each other. This can be illegal in many countries, but it can still happen. For example, if two gas stations communicate with each other to coordinate prices on their products, they can create a price war that benefits neither of them.