What is duopoly? Top 6 duopolies in India

Firms in an oligopoly set prices, whether collectively—in a cartel—or under the leadership of one firm, rather than taking prices from the market. Profit margins are thus higher than they would be in a more competitive market. Oligopolies in history include steel manufacturers, oil companies, railroads, tire manufacturing, grocery store chains, and wireless carriers. The railroad boom in the 19th century was ripe with such conditions. However, the number must be low enough that the actions of one firm significantly influence the others. Even though companies within oligopolies are competitors, they tend to cooperate with each other—either directly or indirectly—in order to benefit as a whole.

  • Syngenta, owned by a Chinese chemical company, ChemChina, plays a major role in the global food system.
  • Similarly, airlines in other nations are also a part of an oligopolistic market.
  • People often get asked if their preferred brand of soft drink is Coca-Cola or Pepsi.
  • Or the large firm or firms may rely on its established relationships with customers or suppliers to limit the activities of smaller firms.
  • More companies would be up for grabs when the government expedites its privatisation of some of the profitable public sector units (PSUs).
  • They sell products at the cheapest rates & due to low rates, people purchase more products which raises their ticket size.

Oligopolies can be followed in several industries such as steel, aluminum and automobile industries. But today, when globalization is at its peak, oligopoly is emerging as the leading market strategy. While the governments of a few countries are promoting it, others are banning it.

Barring the two major cola giants Coke and Pepsi, every city also has local competitors and there is a large unorganized flavoured water market. Moreover, bottled water is also a competitor to the cola brands and in this category neither of the two cola companies are market leaders. However, as far as the cola flavored fizzy drinks are concerned there are only two brands, Coke and Pepsi.

What Are the Characteristics of an Oligopolistic Industry?

The majority of the industries in the U.S. have oligopolies, creating significant barriers to entry for those wishing to enter the marketplace. In most markets, antitrust laws exist that aim to prevent price collusion and protect consumers. Nonetheless, firms have devised ways to achieve price collusion without being detected by regulators. A market structure dominated by a small number of large firms, selling either identical or differentiated products, and significant barriers to entry into the industry. However, there are a series of simplified models that attempt to describe market behavior under certain circumstances.

Unless there is evidence of past misconduct of dominance, which is abusive and harming – for the market, other stakeholders and consumers – there is no justification for maligning a company or a firm. CCI Chairman Ashok Kumar Gupta tells Business Today that sectors which are more innovation-driven and technology-based may be more concentrated, and in some instances, may give rise to monopolies. “Platform markets in the digital space may have a tendency to ‘tip’ in favour of a single market player as a result of network effects,” he says.

Oligopoly in India

Under such a situation economists would say there would be intense competition. Unless, the two parties collaborate with each other, which is certainly not the case in the cola market worldwide or in India. The kinked demand curve for a joint profit-maximizing oligopoly industry can model the behaviors of oligopolists’ pricing decisions other https://1investing.in/ than that of the price leader. Electric power is the fundamental source of energy in our digitized world. It is of immense significance to humanity, as the entire world is trying to switch to electricity from fossil fuels. When it comes to electricity, it is understandable to think that it is a public sector, after all, we pay the government.

While they don’t have a complete monopoly, their collective market share and control over resources make them an oligopoly. High barriers to entry, such as influential brand names, economies of scale, and high capital costs often characterize oligopolies. An oligopoly is an economic situation in which a relatively small number of large companies dominate the market.

Collusive and Competitive

Thus, this sector serves a perfect example for a closed oligopolistic market. While oligopoly is the market strategy that involves a number of producers in the market. The upper limit of the number of producers in oligopoly is not fixed. But generally, the number is maintained in such a way that the decision and action of one industry or producer must affect and influence the others. In this strategy, an association is formed to fix prices, quotas, and output.

The other three are perfect competition, monopoly, and monopolistic competition. Pharmaceuticals never cross our minds as an oligopoly because of the sheer number of brands and types of medicines available in the market. However, only large brands benefit in this industry, and for two reasons, the first one being the requirement of research and development in this field. Medical science continues to advance rapidly, and new medicines are developed constantly. The second reason for the oligopoly in pharmaceuticals is patenting. Once a company develops a new medicine, it patents the drug, and it lasts for 20 years.

Moreover, once certain firms gain a significant share of a market, the barriers to entering that specific market are raised drastically, making it difficult for new competitors to operate. Besides that, dominating companies may even sign an agreement to set a specific price for their products or service. This results in no competition among the brands and easy profit for the companies. An oligopoly (from Ancient Greek ὀλίγος (olígos) ‘few’, and πωλέω (pōléō) ‘to sell’) is a market in which control over an industry lies in the hands of a few large sellers who own a dominant share of the market.

Game theoretical models

The entire computer technology market is globally dominated by two leaders named Apple and Windows. Due to their economic growth across the globe, no other firm is trying to enter in this sector. Unlike, monopoly market, the oligopoly market produces both kinds of goods, that is identical products and different products. There are only a few firms that control the entire sales and process of the market.

Collusion and price cutting

These investments in industrial policies and digital-based welfare systems have led to robust economic performance after the Covid-19 slump. “This oligopoly eventually will hamper competition – domestic and internationally – risk killing new entrants and start-ups. Some customers are so frustrated that they are taking the issues on social media, which is harming their company. It is not that just drivers are to be blamed in this matter as it is due to some of these aggregators policies & rising fuel costs are the main reasons. If they are not successful in attracting the customers, they offer more convenience, products & services for free or at reasonable prices. Mainly there will be a bloodbath to acquire & retain the customers.

Currently, some of the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airlines. With four or five large firms responsible for most of the output of each industry, avoidance of price competition became almost automatic. If one firm were to lower its prices, it is likely that its competitors will do the same and all will suffer lower profits. Competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. Hypothetically, this could lead to an efficient outcome approaching perfect competition.

Oligopoly Examples (Homogenous and Heterogeneous)

In a similar fashion, people started purchasing products like clothing, footwear, kitchenware, and more from franchises instead of local stores. This gave rise to supermarkets, a place where every product from food to travel needs was available. Moreover, these provided budget-friendly products with the convenience of being located in every city. This makes it nearly impossible for small businesses to compete against such large corporations. Presently, there are three major superstores in the United States that control a whopping 85% of this sector.

So, an oligopoly is an intermediate between a monopoly and free market competition. It is characterized by the domination of several large companies while entering the market is difficult for newcomers. An oligopoly is a market model in which only a few manufacturers offer similar products. In other words, a market for specific goods or services is divided among a small number of large producers. A homogenous, or undifferentiated oligopoly involves a small group of firms that all produce the same product, often in a standardized fashion. Oil companies, for example, all produce crude oil that is then standardized through the refining process.

Firms use other methods like advertising, better services to customers, etc. to compete with each other. Because there is no dominant force in the industry, companies may be tempted to collude with one another rather than compete, which keeps non-established players from entering the market. This cooperation makes them operate as though they were a single company.

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