Benefits for consumers in an oligopoly market

In a perfect scenario, an oligopoly creates a trickle-down effect within an economy. Cartel-like behaviour reduces competition and can lead to higher prices and reduced output.

Each company scrambles to come out with latest and greatest thing in order to sway consumers to go with their company over a different one.

Advantages and disadvantages of oligopoly economics

If used rationally, it can be advantageous for the customers as well as the businesses involved in it. For more than 15 years, the telecommunications industry was putting on overage charges, termination fees, and other unfriendly practices that were helping the companies bring in millions of dollars in extra revenues each year without really providing a service. This disadvantage can even inspire consumers to make purchases which add no utility their lives. Therefore, consumer will travel to the same shop at different topographic point. Therefore, market research will avoid concerns make error. For example, a computer tablet maker may respond to a competitor's advertisement by designing and developing a tablet with more features or greater memory. Superior knowledge An incumbent may, over time, have built up a superior level of knowledge of the market, its customers, and its production costs. For example, if a petrol retailer like Texaco wishes to increase its market share by reducing price, it must take into account the possibility that close rivals, such as Shell and BP, may reduce their price in retaliation.

Oligopolists may be dynamically efficient in terms of innovation and new product and process development. Important Facts About Oligopoly The term oligopoly comes from the term oligarchy.

oligopoly effect on consumers

There are several advantages and disadvantages of an oligopoly when it forms. There are certainly some benefits of a oligopoly market structure, but many drawbacks as well.

In this instance, the supermarket industry in UK was dominated by four manufacturers ; and they are mutualist, therefore it fits the feature of oligopoly market. Uphill Climb for Start-Ups In terms of oligopoly disadvantages, the big one is that your enterprise will face difficulty taking flight if you forge into an oligopolistic industry.

List of the Pros of an Oligopoly 1. Higher wages mean more discretionary spending, which can help the GDP. Guardian states Tesco sent out about? In oligopoly, many times, products of two different competitive companies are derived out of one large firm. High profits generated by the companies can be used for innovation and development of new products and processes.

Advantages and disadvantages of oligopoly market structure pdf

Oligopolies can offer more information to their consumers. Because the level of profits is often super-normal in this state, the extra funds can funnel toward research and development projects that can help consumers in a variety of ways. However, there is a risk with such a rigid pricing strategy as rivals could adopt a more flexible discounting strategy to gain market share. The first occurs when there is no attempt made to hide an agreement. The advantages help to promote innovation and choice, while the disadvantages can force a lack of spending in the local economy. Harmonizing to The Guardian , the supermarket industry in UK, was dominated by four chief companies with approximately If colluding, participants act like a monopoly and can enjoy the benefits of higher profits over the long term. This is largely because firms cannot pursue independent strategies. Within this structure, the market is shared by a small number of either sellers or producers. With a small number of firms in a market, they can collude together to fix the prices of the goods or services they sell.

While lower prices benefit consumers, the firms might have to sacrifice some of their profits to keep customers or undercut rivals.

Rated 9/10 based on 83 review
10 Pros and Cons of Oligopoly