Group Behaviour means that firms tend to behave as if they were a single firm even though individually they retain their independence. In India, markets for automobiles, cement, steel, aluminium, etc, are the examples of oligopolistic market. In all these markets, there are few firms for each particular product. Cement prices have seen a steep rise in recent months, on the back of rising costs of inputs such as power and fuel due to the ongoing Russia-Ukraine conflict. A combination of increased demand following the pandemic and supply bottlenecks have put further pressure on cement prices.

• This results in no competition among the brands and easy profit for the companies.
• The first took place some years ago when the brand Coca-Cola came back to India.
• Worldwide there are perhaps a dozen key automakers including Toyota, Honda, Volkswagen Group, and Renault-Nissan-Mitsubishi.
• The main pricing models in an oligopoly are the leadership model, the Bertrand model, the Cournot model, and the cartel model.

The concentration ratio measures the market share of the largest firms in an industry and is used to detect an oligopoly. Companies have the power to fix prices and create product scarcity without competition, which can lead to inferior products and services and higher costs for buyers. While limiting competition, oligopolies and monopolies can operate unencumbered in the U.S. as long as they do not violate antitrust laws. These laws cover unreasonable restraint of trade; plainly harmful acts such as price-fixing, dividing markets, and bid-rigging; as well as mergers and acquisitions (M&A)that substantially lessen competition. For new companies with similar offerings, breaking into an oligopoly is a challenge.

Airlines

Likewise, when one firm lowers its price, other firms also decrease their prices so that they do not lose customers. If firms in an oligopoly market compete with each other, it is called a non-collusive or non-cooperative oligopoly. If the firms cooperate with each other in determining price or output or both, it is called collusive oligopoly or cooperative oligopoly. They are the biggest threat to the small Indian retail shops as these e-commerce giants directly sell products to customers at the lowest prices so competing with them is hard. But neither of these three companies leads in shareholder returns delivered by top cement manufacturers. That mantle goes to Shree Cement, the largest cement manufacturer in north India, whose stock price has grown at a CAGR of 38% during this period, though amid very thin trading volumes.

Mukherjea of Marcellus Investment Manager says such companies are the source of investment, innovation and wealth creation. "Monopolists (or those with a higher market share), through intelligence and hard work, have built very high barriers for entry, which allow them to earn a return on capital of, say around, per cent - three times the cost of capital. One of the main reasons why OPEC is considered an oligopoly is because it has no overarching authority. Every member nation within the group also has a substantial portion of the group's market share. These countries also have a great deal of power together (not separately) when it comes to supply and demand issues and pricing.

Chapter 6: Concepts of Cost and Revenue

Most oligopolies exist in industries where goods are relatively undifferentiated and broadly provide the same benefit to consumers. An oligopoly is a type of market structure that exists within an economy. In an oligopoly, there is a small number of firms that control the market. A key characteristic of an oligopoly is that none of these firms can keep the other(s) from having significant influence over the market. The concentration ratio measures the market share of the largest firms. There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others.

People often get asked if their preferred brand of soft drink is Coca-Cola or Pepsi. While it is a childish question, it does provide us with an insight into the oligopolistic nature of the soft drink industry. Even if you don’t go for Pepsi or Coca-Cola, these brands cannot be ignored, as other high-selling beverages like Mountain Dew, Gatorade, 7Up, Fanta, Dasani, Powerade, and more are owned by these two companies. When it comes to revenue, Coca-Cola generates $40 billion annually, as for Pepsi, its revenue was $79 billion in 2021.

The combined market share of the four major wireless carrier companies in the U.S.—Sprint-Nextel, T-Mobile, Verizon, and AT&T—is over 98%. In this highly concentrated industry, certain practices that are unfriendly to the consumer have become the norm, including termination fees and sneaky overage charges. Oligopolies form when several dominant companies rule over a particular market or industry, making collaboration and partnerships possible between the firms that exist within them.

Is the automobile industry an oligopoly?

The soft drink majors also pioneered a 500 ml non-returnable PET bottle, which was advertised almost totally on the cost of the consumer per 100 ml of cola. The great advantage of PET bottle is that they not only encourage high level of consumer but increased home consumption which was small compared to out of home consumption. The first took place some years ago when the brand Coca-Cola came back to India. Coca-Cola launched itself in all major cities in the 300 ml size at the same price as Pepsi, which was then in a 200 ml bottle. Oligopolistic firms that operate on a national or global scale are also huge in another sense - they are just plain big.

Nowadays, people are opting more for online streaming services over downloading their music. Thanks to this phenomenon, services like Apple Music and Spotify are quickly becoming the go-to choice for music. If the firms produce a differentiated product, like automobiles, the industry is called differentiated or imperfect https://1investing.in/ oligopoly. Under oligopoly, there is complete interdependence among different firms. So, price and output decisions of a particular firm directly influence the competing firms. Instead of independent price and output strategy, oligopoly firms prefer group decisions that will protect the interest of all the firms.

So, demand curve faced by an oligopolist is indeterminate (uncertain). As firms are inter-dependent, a firm cannot ignore the reaction of the rival firms. Any change in price by one firm may lead to change in prices by the competing firms. So, demand curve keeps on shifting and it is not definite, rather it is indeterminate. The main reason for few firms under oligopoly is the barriers, which prevent entry of new firms into the industry.

Oligopolistic Market

Among other detrimental effects of an oligopoly include limiting new entrants in the market and decreased innovation. Oligopolies have been found in the oil industry, railroad companies, wireless carriers, and big tech. The main pricing models in an oligopoly are the leadership model, the Bertrand model, the Cournot model, and the cartel model. Companies can cooperate or compete to achieve the best results depending on the situation.

A duopoly is good for the companies as they own the market & these companies can operate the way they want & can increase prices whenever they want. Between them, ACC and Ambuja have 65 million tonnes of annual cement manufacturing capacity. As a combine, this is next only to the 120 million tonnes of UltraTech, from the Aditya Birla Group. Over 1999 and 2000, the Tata Group sold its stake in ACC to Ambuja. In between these two transactions, Grasim (an Aditya Birla company) acquired the cement operations of L&T, which is UltraTech today.

Some of the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airlines. Since the 1980s, it has become more common for industries to be dominated by two or three firms. Merger agreements between major players have resulted in industry consolidation.

Advantages and Disadvantages of an Oligopoly

Four of the five transcontinental railroads were built with assistance from the federal government through land grants, receiving millions of acres of public lands from Congress. Amonopolyis one firm holding concentrated market power, aduopolyconsists of two firms, and an oligopoly is two or more firms. Price rigidity is a situation in which the price of the product tends to stay the same or fixed irrespective of the changes in supply and demand of those products. In a competitive situation such as the one that exists in the cola market, the important thing is not the price; it is the value that the consumer gets. And that always increases in proportion to the ferocity of the battle in the marketplace.

Airtel reported its first-ever loss in 14 years in the April-June quarter of 2019 (currently in profits). Vodafone & Idea, two separate telecom operators, merged for survival in 2018 & it is operating in losses even today. Both companies are being criticised for charging hefty commissions from restaurants & regarding platform neutrality which means giving more priority to their favoured sellers/partners. We all know only those companies win that give the most benefits to their customers.

As the patents are being registered here, it creates a notebook of experience for the future. Since firms under oligopoly can block new entrants, increase prices, and slow down innovation, they can harm consumers. In many countries, antitrust laws exist that aim to prevent price collusion and protect consumers. However, no single model can accurately describe the operation of an oligopolistic market because two to ten companies compete in terms of innovation, quantity, price, marketing, and reputation. In economics, an oligopoly can be defined as a market structure wherein a particular industry is dominated by a few large sellers (oligopolists).