An oligopolistic market structure describes the situation where a few firms
dominate the industry. The product may be standardized or differentiated; examples
of the first type are steel, chemicals and paper, while examples of the second
type are cars, electronics products and breakfast cereals. The most important
feature of such markets that distinguishes them from all other types of market
structure is that firms are interdependent. Strategic decisions made by one firm
affect other firms, who react to them in ways that affect the original firm. Thus
firms have to consider these reactions in determining their own strategies. Such
markets are extremely common for both consumer and industrial products, both
in individual countries and on a global basis. However, there is a considerable
amount of heterogeneity within suchmarkets. Some feature one dominant firm,
like Intel in computer chips; some feature two dominant firms, like Coca-Cola and
Pepsi in soft drinks; some feature half a dozen or so major firms, like airlines,
mobile phones or athletic footwear; and others feature a dozen or more firms
with no really dominant firm, like car manufacturers, petroleum retailers, and
investment banks. Of course, in each case the number of major firms depends on
how the market is defined, spatially and in terms of product characteristics.
8.5.1 Conditions
The main conditions for oligopoly to exist are therefore as follows:
1 A relatively small number of firms account for the majority of the market.
2 There are significant barriers to entry and exit.
3 There is an interdependence in decision-making.0