Oligopoly is a common economic system in today's society. The word "oligopoly" comes from the Greek "oligos" meaning "little or small" and "polein" meaning "to sell." When "oligos" is used in the plural, it means "few."
Oligopoly is the middle ground between monopoly and capitalism. An oligopoly is a small group of businesses, two or more, that control the market for a certain product or service. This gives these businesses huge influence over price and other aspects of the market. Since it is the middle ground, oligopoly examples are abundant in our economic system today.
A monopoly is exclusive control of the market by one business because there is no other group selling the product or offering the service. A true monopoly rarely exists because if there is no competition, business will increase the price while reducing output to increase profits.
Antitrust laws keep this type of market condition from existing. A "natural monopoly" exists where having more than one supplier is inefficient, like in public utilities, but these are regulated by the government. Not only does a monopoly cause higher prices; it can also lead to inferior products and services.
Capitalism is a condition where there is open competition, a free market, and private ownership of production. This encourages private businesses and investments, as compared to a government-run system.
With capitalism, the market is regulated through the dictates of supply and demand, price, and distribution which are controlled by business owners and investors. Profits are distributed among the owners and shareholders; these shareholders in private companies are called capitalists.
Businesses that are part of an oligopoly share some common characteristics:
There is still competition within an oligopoly, as in the case of airlines. Airlines match competitor's air fares when sharing the same routes. Also, automobile companies compete in the fall as the new models come out. One will reduce financing rates and the others will follow suit.
This creates a high amount of interdependence which encourages competition in non price-related areas, like advertising and packaging. The tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly.
Industries which are examples of oligopolies include:
Lastly, companies in oligopolies establish exclusive dealerships, have agreements to get lower prices from suppliers, and lower prices with the intention of keeping new companies out.