Oligopoly Emergence Causes
1. Historical Factors- Historically oligopolies in industry have born into existence in two ways. Firstly, the industry may have been atomistic in structure but in the course of time few firms may have expanded either with the market expansion or at the cost of smaller firms. Secondly the industry may have been controlled from the beginning by a few firms who had the power to keep possible competitors out.
2. Economies of scale- Economies of scale are the most important factor working for oligopolistic control. With technical progress the scope of mechanization and division of labour improves which results in the percentage of cost reduction and with their expansion smaller firms are driven out of the market.
3. Efficient Entrepreneurs- Another factor responsible for the emergence of oligopoly is the existence of superior entrepreneurs. They follow aggressive policy of ruthless competition against weaker rivals to drive them out of the market or force a merger with them.
4. Patent Rights- Yet another source of formulation of oligopoly is the patent rights and other executive franchise which a few firms may have acquired in the matter of same product.
5. Control of Indispensable resources- some firms may gain control over resources used in the manufacture of the product. These enabled firms to secure a big advantage in cost over all other firms could not survive. Consequently other firms which had to buy this costly resource could not survive the competition and a few firms come to dominate the industry.
6. Difficulties of Entry- finally oligopoly may come to exist because of the difficulties of entry into the industry, price war, difficulty to obtain capital, marketing problems of new goods etc. which create difficulties for a new firm to enter the market.
Oligopoly can be classified on different basis:
1. Pure Versus Differentiated Oligopoly- Oligopoly is classified as pure or perfect and differentiated on the basis of product differentiation. If the products of various firms are homogeneous the term pure oligopoly is applied. On the other hand, oligopoly is imperfect then the competing firms are not homogeneous. The stronger the differentiation, the weaker will be feeling of mutual interdependence. Differentiated oligopoly is characteristic of a very large portion of the economy.
2. Open Oligopoly versus Closed Oligopoly- On the basis of possibility of entry of firm's oligopoly may be classified into open oligopoly and closed oligopoly. An open oligopoly refers to that market situation which allows free and easy entry of new firms. Closed oligopoly on the other hand implies that the industry is controlled by a few firms and entry of competitors is prevented.
3. Partial oligopoly and Full Oligopoly- Yet another classification of oligopoly is based on the presence or absence of price leadership. On this basis partial oligopoly refers to the predominance of the industry by one or a few large firms followed by a cluster of small firms. Full oligopoly is a state of less equal status with no price leadership.
4. Collusive and Non-Collusive Oligopoly- On the basis of the existence or non-existence of agreements among sellers we have collusive oligopoly, other otherwise will be collusive.
5. Syndicated Oligopoly and Organized oligopoly- Oligopolies which have centralized selling through syndicates have been characterized as syndicated oligopolies. These which have entered into some agreement about price, input quotes and sharing of the market have been termed as organized oligopolies.
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