Oligopolies

What are oligopolies?

1. Oligopolies are markets dominated by a small number of firms, where firms are interdependent with one another

2. Statistically, an oligopoly is defined as 5 (or fewer) firms owning 50%( or less) market share.

3. An example of an oligopoly is the supermarket industry,

How do firms in oligopolies compete with each other?

1. Promotion

2. Product type

3. Location

Explain why firms would promote their products

1. Firms in Oligopolies can promote their good or service to gain consumer attraction.

Explain product type

1. Firms can sell products exclusively( i.e. goods and services that are not sold in other companies) to consumers for greater brand loyalty.

2. Firms can sell products at a specific time of year( such as Diwali or Christmas). For example, during Black Friday consumers desire to purchase a greater amount of products due to the holidays approaching.

3. This is advantageous for firms as they gain greater revenues and profits.

Explain location

1. Firms can open substores in different location, i.e. populated areas, for greater consumer exposure.

2. This allows firms to gain higher revenues and profits.

Explain why firms in oligopolies cannot compete over price

As one firm reduces the price of its products to "gain" consumer exposure, other firms will follow in the same manner. However, in doing so they will lose revenues and profits.