oligopoly

play
noun ol·i·gop·o·ly \ ˌä-lə-ˈgä-pə-lē , ˌō- \
Updated on: 26 Jul 2017

Definition of oligopoly

:a market situation in which each of a few producers affects but does not control the market

oligopolist

play \ˌä-lə-ˈgä-pə-list, ˌō-\ noun

oligopolistic

play \ˌä-lə-ˌgä-pə-ˈli-stik, ˌō-\ adjective

Recent Examples of oligopoly from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'oligopoly.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of oligopoly

olig- + -poly (as in monopoly)


Financial Definition of OLIGOPOLY

oligopoly

What It Is

An oligopoly is an economic market whereby a small number of companies or countries generate and control the entire supply of a good or service.

How It Works

Let's assume that Company XYZ, Company ABC, and Company 123 produce 95% of the country's carrots. If Company XYZ raises the price of its carrots, consumers may choose to buy from Company ABC and Company 123 instead. But if Company ABC and Company 123 decide to follow Company XYZ's lead and raise their prices, the three companies can essentially control the entire carrot market through their power to set prices.

In a truly competitive market, the three companies would not have this luxury--they would probably have to either lower their prices or differentiate their products to stay in business. Companies in an oligopoly are keenly interested in what the other members of the oligopoly will do next. The goal of a company involved in an oligopoly is to increase profits by attempting to monopolize the market by finding and maintaining competitive advantages.

Economies of scale often lead to oligopoly-like conditions because they discourage new competitors from entering a market. Consider how capital intensive it is to enter the airline business or the soda business (industries are commonly thought of as oligopolies). And because there is so little of the market available to competitors, new entrants to an oligopoly rarely succeed.

Why It Matters

Although uncommon, oligopolies can quickly turn into cartels, which are groups of companies that agree to influence prices by controlling the production and sale of a good or service (one of the world's most well-known cartels is the Organization of Petroleum Exporting Countries--OPEC). The companies essentially collude to control supply and prices. This is why prices in oligopolistic industries are usually higher than markets that allow greater competition.

Oligopolies and cartels are hard to maintain in the long term. Federal antitrust laws, most notably the Sherman Act, make cartels and collusive activity illegal in the United States. Also, disagreements within cartels regarding output may cause a break up of the group. In addition, consumers often become sensitive to the increased prices.


Law Dictionary

oligopoly

play
noun ol·i·gop·o·ly \ ˌä-li-ˈgä-pə-lē, ˌō- \

legal Definition of oligopoly

plural -lies
:a condition in which a few sellers dominate a particular market to the detriment of competition by others

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