oligopoly

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

|Updated on: 16 Jun 2018

Definition of oligopoly

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

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oligopolist

play \ˌä-lə-ˈgä-pə-list, ˌō-\ noun

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oligopolistic

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

Recent Examples of oligopoly from the Web

The real evidence is that America’s Big Three car markers became less competitive as an oligopoly, and foreign imports forced them to shape up and make better cars.

— the editorial board, WSJ, "Trump’s Trade Confusion," 24 May 2018
In the second Gilded Age, consolidation has led toward oligopoly.

— rick hampson, USA TODAY, "America's Second Gilded Age: More class envy than class conflict," 17 May 2018
But Silicon Valley increasingly looks like an oligopoly.

— james mackintosh, WSJ, "Main Street’s Gain May Be Wall Street’s Pain," 23 Apr. 2018
The excess profits of the health-care firms are equivalent to $200 per American per year, compared with $69 for the telecoms and cable TV industry and $25 captured by the airline oligopoly.

— The Economist, "Which firms profit most from America’s health-care system," 15 Mar. 2018
The fossil fuels that powered the 20th century were produced by oligopolies, fed into centralised networks and sold on the premise of scarcity.

— The Economist, "A good, clean fightGlobal powers need to take the geopolitics out of energy," 15 Mar. 2018
In public at least, the chief executives of China’s data oligopolies, including Alibaba and Tencent, are evangelists for the project that requires them to sluice gushers of consumer data to state superhubs.

— andrew browne, WSJ, "China Uses ‘Digital Leninism’ to Manage Economy and Monitor Citizens," 17 Oct. 2017
The 20th century dominance of American car companies, thanks to corporate oligopoly and labor monopoly, started eroding with the Japanese invasion of the 1970s and 1980s.

— paul ingrassia, Car and Driver, "Detroit Automakers Are Driving in Different Directions Toward the Tech-Filled Future," 22 Dec. 2017
As an oligopoly, the three DRAM makers today are keeping production in check — and raking in money.

— david staats, idahostatesman, "Prosecutors say Micron workers in Taiwan stole tech secrets | Idaho Statesman," 8 Dec. 2017

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)

NEW! Time Traveler

First Known Use: 1895

in the meaning defined above

See Words from the same year

Other Economics Terms

actuary, compound interest, globalization, indemnity, portfolio, rentier, stagflation, usurer

Financial Definition of OLIGOPOLY

oligopoly

noun

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.

Source: Investing Answers