What is oligopolies? is an important term for the students of ecommerce or economics. Oligopolies are widely used in the world of commerce and the economy. The word oligopoly itself comes from two diverse words specifically oligos (meaning “many”) plus polein (meaning “selling”). Oligopoly can be understood as an imperfect market condition, where several companies sell the same product (homogeneous) to the public.
How many companies are in Oligopolies?
Usually the number of companies competing in the oligopoly market is more than two, but less than ten. These companies are able to dominate the market with the products they sell.
Controlled Competition in the market
Because the products sold are the same, companies must be keen to carry out promotions so that their products become the best-selling on the market. Competition in the oligopoly market is indeed very tight, where companies as the main players must be able to win consumers and distance themselves from their competitors.
Oligopolies in everyday life
The practice of oligopoly can be found in everyday life. For example, as happened in the cigarette industry, cement, cars, to aviation services. All of these companies fight over the same target market, so the marketing methods used are aimed at attracting consumers to them and beating their competitors.
The oligopoly market is a homogeneous market because its products are substitution. One product has the same function as another product so that they can replace each other even if it’s not perfect. Consumer loyalty is very important in this case to prevent them from moving to another company.
Characteristics of Oligopoly Markets
Although we often encounter oligopoly markets, or even engage in them, it is sometimes difficult to distinguish them from other markets in the economic world. The following are the characteristics that appear in the oligopoly market.
How many Market players?
If monopoly is the dominance of one large company in a market, then in oligopolies there are more than 2 companies involved. Usually no more than ten, but these companies are competing to win the hearts of consumers. The number of companies is also offset by the large number of buyers in the oligopoly market.
Products sold in the oligopoly market are substitution or can be replaced. Even though the types of products are the same, they are still differentiated from one another. For example, 5 companies sell smartphones, but each company has their own advantages.
Of the many producers involved in the oligopoly market, there is usually one that is superior and more powerful than other producers. The policies made by this company will affect the policies of other companies under it.
For example, in the android smartphone market, Samsung is superior to its competitors. Every time Samsung innovates its products, other companies will follow suit in order to compete with their products.
Oligopoly market is controlled by whom?
Because the oligopoly market is controlled by a number of large companies, it is difficult for new producers to enter into it. Older companies or producers usually implement a predatory pricing system to prevent the entry of new producers which further tighten their competition.
Advantages of Oligopoly Market
Consumers can choose products that suit their needs and purchasing power. Because there is more than one producer, consumers also have many choices.
Producers do not have the power to determine prices because competition is very tight. This benefits consumers because they will get standard or even lower prices.
Even though the consumer market is very large, producers must improve the quality of their products in order to gain customer loyalty. Customers will get the best quality products at very affordable prices, so it is very profitable for them.
New products in market
Tight competition forces producers to continue innovating their products. Thus consumers will always get new products, which are different from previous products. They can expect the better products in every new lots which are produced in Oligopoly market.