Oligopoly Examples

Updated on January 31, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Are Oligopoly Examples?

Oligopoly examples refer to instances that indicate how an oligopolistic structure affects a market. An oligopoly market is marked by the presence of small number of firms that coexist to compete. This structure type, unlike a monopoly, encourages the spirit of competition in the market.

Oligopoly Examples

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In the current scenario, the number of these players is increasing. Consumers have a list of companies for a particular sector. These are prevalent and that too within the wide cross-section of industries. Some of the common industry sectors where oligopoly is evident are the aviation industry, media industry, pharma industry, telecom industry, media, etc.

Key Takeaways

  1. An oligopoly allows for the coexistence of numerous competitors. Customers now have a list of businesses in a specific industry. These are common, and this applies to a diverse range of industries.
  2. Daily examples of Oligopoly industries are pharma, media, automobile, and technology. Oligopolies can be identified through concentration ratios, which calculate the share of the market that each firm controls. 
  3. The technology sector has two major players for computer operating software, such as Apple and Windows; the Pharma sector has Pfizer, Novartis, and Merck. 
  4. Ford, Chrysler, and GM Trinity have long been in the limelight, proving that competitors co-exist in an oligopoly situation. 

Oligopoly Examples Explained

Oligopoly examples include companies that enjoy oligopoly in the market. In this type of market structure, businesses are present in small number and dominate the market, restricting new entries into the market.

An oligopoly is different from a monopoly, which is dominated by only one major player in the market. In the latter form of structure, businesses exploit the market by raising the prices of the products they have a monopoly in. Customers, in turn, have to agree to pay whatever businesses ask for as they have no other place or seller to go to.

In an oligopoly, however, the scenario is different. Here, customers get choices. Businesses, though exist in small numbers, let customers choose, even if limited. Hence, there is scope for competition, which makes businesses produce and sell better products than their rivals. As a result, consumers get better options at more reasonable prices.

In this form of market, however, the new entrant cannot easily enter because of barriers. This is due to those small number of businesses that do not want to enhance the level of competition. Some of these barriers to entry include regulatory restrictions, limited access to supply and distribution channels, economies of scale, etc. At the same time, oligopoly helps lower the average cost of production of goods. If the extra profit marginProfit MarginProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. read more is being used in innovations, this suits companies with high R&D costs.

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List of Examples

Let us consider the following instances to understand oligopoly examples in real life better:

Example #1 – Technology Industry

The computer technology sector shows us the best example of oligopoly. If we dig under computer operating softwares, two prominent names come up: Apple and Windows. These two players have managed the majority of the market share. There is one more player in this oligopoly named Linux Open Source. But apart from these three, there are hardly any players in this sector as they command almost 100 % of the global market share. The computer can be of any brand, but the operating system will be for sure from any of those. They have achieved this stage because of two primary factors.

One is the brand image and trust they have created in the eyes of consumers, and secondly, there is the lack of players who can stand in front of these three while building trust among consumers. Moreover, their dominance in this sector gets increased as the majority of computer softwares made are compatible with these three operating systems, which in turn is making this oligopoly self-sustaining. Their innovations into their sector also keep them unique, which helps them create an ecosystem that completely sustains their growth.

The same is the case for an operating system for smartphones where the majority market share is captured by Android & iOS. These companies are coexisting without creating a threat to others.

Example #2 – Media Industry

Let us take the media sector in the US, where 5-6 players are capturing almost 90% of this sector. At the same time, a 10% share is being captured by the other small players who command the chunk of viewership, including the likes of Viacom, Disney, Time Warner, and NBC. They capture a significant share in terms of operating rates and usage terms. When we look at the overall prime time programming and content selection, we will observe that there is also considerable unity.

It means if they keep the same primetime on every channel, their viewership will be diversified. In that case, not a single player will be able to take the edge. So they follow through with their unity by looking out for the share of the same viewer base by mutually deciding the prime time for individual channels. By following this, even though the scalability of the TV channels will get limited to an extent across those ranges, all the players can coexist, and that too with relative gains. They are not supposed to face any cut-throat competition. As a result of this oligopoly, the relative cost will decrease for the new foray.

Example #3 – Automobile Industry

The automotive sector in the United States shows a unique example of oligopoly. The trinity of Ford, Chrysler, and GM has come into the limelight because of technological excellence. They have offered stiff challenges and competition to the major players worldwide. They have smartly dominated the entire space in the US local markets. They are referred to as the Big Three in the US automobile sector, which shows they hold a unique position there. They single-handled the service automobile demand in 1950-1960 and earned a huge margin. It can be seen the synchronized collusive actions taken by these three players.

It can be seen in their decisions of launching small cars, the sequence in which they raised the prices of cars which clarifies that these three players took a united and well thought of strategy. One may distinguish among the three based on prices, but based on features, all are distinct. The trend between the periods 1960 – late 1970 showed that Chrysler would announce the price rise first; then General Motors would announce the second price rise. The strategy was that General Motors would announce a price rise less than that of Chrysler. Then Chrysler will reduce its price to General Motors’ level. Further, Ford joined them in raising the price, and all three settled to the ford price. However, this oligopoly is blamed as the main cause of the downturn in the US automobile sector.

Example #4 – Pharma Sector

Some key players globally dominate the pharma sector. This is because they are the leaders in new drug innovation and the price maker for drugs. The top three companies we can refer to in our example are Novartis, Merck, and Pfizer. The threat of new entrants to this sector is the fairly limited reason being the whooping expenses that have to be met in developing a new drug.

Patents are being registered for the drugs in circulation, which enables easy resolution of the issue while it protects the new drug from potential competition. As a result, they can create an edge from their experiences, which will help them succeed in the future. The oligopoly here works in a symbiotic fashion.

Frequently Asked Questions (FAQs)

What is oligopoly vs monopoly?

An oligopoly occurs when a small number of relatively large enterprises create similar but slightly different items. In contrast, a monopoly occurs when a single company provides goods with no direct competitors.

Why do oligopolies exist?

Collaboration is the main cause of oligopolies. Collaboration on a set price is more advantageous to businesses economically than trying to outbid rivals.

What other industries are a part of Oligopoly?

Industries in the FMCG sector, airlines, and apparel are perfect examples of oligopolistic companies such as Coca-Cola – Pepsi, Airbus – Boeing, Nike – Reebok, H&M – Zara, etc.

What are the two types of Oligopolies?

Pure or perfect oligopoly and differentiated or imperfect oligopoly are two types of oligopoly. A type of oligopoly known as pure or perfect oligopoly develops when a commodity is a uniform in composition.

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