Oligopoly

The oligopoly refers to a small number of offering products .  The word is derived from the Greek and is formed from two different concepts:  oligo, which means “few” and polio , which means “seller.” Being this way we can define the oligopoly as a market of “few sellers”. Each salesperson who is part of this process is very aware of the actions of others. The decisions that an entrepreneur makes will affect others most of the time. Oligopolists often take advantage and take advantage of their position to set higher prices and lower production. They are companies that collaborate among themselves to manage to maintain themselves and thus avoid competition.

Oligopoly characteristics

• For the oligopoly participants, competition does not exist, since they have absolute control and dominance of the market.
• He often has access to his own resources in terms of company advertising and marketing .
• They frequently use dumpling , which means lowering prices even below the cost of production and manufacturing to achieve profit and for this reason the oligopolies have no competition.
• Among themselves they make it difficult and sometimes prevent the entry of new companies into their circle.
• They have two types of goods: the differentiated ones that are processed products and the homogeneous ones that refer to the raw materials for the manufacture of products.

Types of oligopoly

• Differentiated : This type of market has been developed by theorists who have entered into monopolistic or imperfect competition . Among its characteristics is that it includes a wide variety of manufactured products such as automobiles, detergents and airlines fall into this group.
• Concentrate : This is one way the market achieves industrial concentration . It tends to appear when there are few producers of a given raw material.
• Concentrated differentiation : It occurs as a result of the combination of some elements that are present in the aforementioned types. Its main characteristic is the differentiation of products.
• Competitive : It is characterized by the high concentration in its production. They tend to compete through their prices.

Oligopoly advantages

• The oligopolistic companies have a great variety of means to avoid that their ideas are surpassed by other companies.
• When there is legal protection and competitive advantages in a certain sector, companies are benefited with greater freedom and peace of mind to improve their services and products.
• Companies should not worry in the short and medium term about the competition that could affect them.
• The remunerations of the members of their payroll tend to rise, since the quality of their products is never altered and they do not need to reduce production prices.
• The internal workings of the company perform better.
• The products that consumers can purchase from an oligopoly improve every day and adapt to changes in the tastes of those people.

Disadvantages of oligopoly

• With the oligopoly an abnormal situation is created which is marked by the permanence of a single company.
• The access of other companies to the market is prohibited .
• Companies that are formed or are emerging around an oligopolistic business find a lot of limits in their activity.
• Sellers’ actions always affect other sellers.
• Product costs are high, quality low in many of its products and services.
• The economy becomes weak and there is little opportunity for investors as there is very little competition while generating fewer jobs.

Examples of oligopoly

• Chile :  A clear example of an oligopoly in Chile can be seen in telecommunications companies. Years ago, the market was made up of Claro, Entel and Movistar , which were the companies that dominated the market, imposed the prices of the products and also earned large profits on their sales. But over time, the company WOM entered the market, incorporating a variety of very low prices in its plans that unchecked the entire industry.
• Argentina :  The Arcor companyhas become the oligopolistic company that leads the canned food market. It is the largest firm in traditional jams and handles the candy market very easily.
• Mexico :  In many sectors that are key to the country’s economy, such as telecommunications and transportation , there are companies that have high levels of profit as a direct consequence of exercising absolute power within the market.