oligopoly

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

|Updated on: 28 Jul 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

But the market could go from cut-throat competition to oligopoly to state control with extraordinary speed.

— The Economist, "The market for driverless cars will head towards monopoly," 7 June 2018
But now, according to Georgette Boele, diamond industry analyst at ABN AMRO, the market is an oligopoly, with three mining giants dominating smaller players.

— annabelle williams, Philly.com, "What do lab-grown diamonds mean for Jewelers Row?," 7 July 2018
In effect, four of the eight largest companies in the world control an online-advertising oligopoly and are denying competitors access to these services.

— mark epstein, WSJ, "Google’s and Facebook’s Dubious Bitcoin Bans," 25 June 2018
An exploitation some online oligopolies expose music authors to by using legal loopholes and operating a parasitic value creation model.

— wolfgang spahr, Billboard, "German Rights Body GEMA Applauds Europe-Wide Efforts to Curtail 'Parasitic' Value Models of Digital Services," 19 June 2018
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

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