An oligopoly is when a market is shared by only a small number of firms, resulting in a state of limited competition. An oligopoly is similar to a monopoly, but in a monopoly, only a sin♕gle company or group owns all or nearly all of t🐟he market for a given type of product or service.

There is no upper limit to the number of firms in an 澳洲幸运5官方开奖结果体彩网:oligopoly. 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. This often leads to higher prices for consumers.

Historical Examples of Oligopolies

Oligopolies in history include steel manufacturers, oil companies, railroads, tire manufacturing, grocery store chains, and wireless carriers. The conditions that enable oligopolies to exist include high entry costs in 澳洲幸运5官方开奖结果体彩网:capital expenditures, legal privilege (license to use wireless spectrum or land for railroads), and a platform that gains value with more customers (such as social media). The railroad boom in the 19th century was ripe with such🔯 conditions.

In the United States during the mid- to late-1800s, a boom of railroad construction took place, including establishing the transcontinental railroad that stretched from the East Coast to California. Railroads, being both capital and labor-intensive, presented high barriers to entry and legal status as a sort of public utility. 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. 

This allowed for an oligopoly, especially as smaller competitors were acquired. For instance, in 1901, nine locomotive manufacturing companies combined in a merger to form the American Locomotive Company (ALCO). 

Industry Consolidation Is on the Rise

Throughout history, there have been oligopolies in many different industries, including steel manufacturing, oil, railroads, tire manufacturing, grocery store chains, and wireless carriers. Currently, some of 澳洲幸运5官方开奖结果体彩网:the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airline♈s.

Since the 1980s🌃, it has become more common for industries to be dominated by tw𒈔o or three firms. Merger agreements between major players have resulted in industry consolidation.

The 澳洲幸运5官方开奖结果体彩网:concentration ratio measures the market share of the largest firms in an industry and is used to detect an oligopoly. 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.

Media Conglomerates Domina🌠te Film and Television

Film and television production in the U.S. is dominated by the film and television production units of five media conglomerates: The Walt Disney Company, WarnerMedia, NBCUniversal, Sony, and ViacomCBS. In 2023, the box office proceeds of NBCUniversal exceeded $4.9 billion, beating out Disney's $4.82 billion, who has held the number one spot since 2015.

Previously, 21st Century Fox was included in this list of the largest film production companies, but in March 2019, all the media assets of 21st Century Fox were acquired by Disney for $71.3 billion. This acquisition made The Walt Disney Company the largest media company in the world.

Wireless Carriers Repres꧟ent H🍸ighly-Concentrated Industry

The combined market share of the three major wireless carrier companies in the U.S.—T-Mobile, Verizon, and AT&T—is 99.1% as of the end of 2023. In this highly concentrated industry, certain p🔯ractices that are unfriendly to the consumer have become the norm, including termin⛦ation fees and sneaky overage charges.

The🐈 majority of consumers are locked in contracts with one of these three companies, and𓄧 there is very little recourse for this oligopoly behavior.

The Big 3 Music Labels

Although there are niche record companies that cater to specific audiences and music styles, the music industry is dominated by three major recording labels: Sony Music Entertainment, Universal Music Group, and Warner Music Group. EMI was included i🐼n this group until Universal Music Group purchased EMI in 2012.

When Universal Music Group initially expressed interest in purchasing EMI for $1.9 billion in 2012, industry watchdog groups encouraged the government to stop the deal, claiming that the consolidation would result in the newly created music superpower disrupting pricing and raising costs for consumers. Although a congressional hearing was held and the issue was examined by both American and European regulators, the takeover was eventually approved.

Domestic Airlines Oligopoly

The airline industry in the U.S. is also arguably an oligopoly, with four major domestic airlines— American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines—flying about 67% of all domestic passengers in 2023.

Prior to 1978, domestic air travel in the U.S. was managed like a public good by the Civil Aeronautics Board (CAB). They established schedules, fares, and approved new routes. With the introduction of the Airline Deregulation Act in 1978—intended to increase competition in the airline industry—the price of fares dropped, in addition an increase to the number of flights offered.

However, after extensive consolidation in the industry and the failure of many smaller airlines, prices of airline flights started to sharply rise and have continued to rise despite the sharp decline in the cost of fuel. In addition, starting in 2008, airlines have begun charging fees for services that were earlier included in the airfare.

Market Structures Exist on a Spectrum

In reality, market structures should be𝔍 thought of as on a spectrum from pure monopoly to perfect competition. While these industries all exhibit oligopoly behavior, structural shifts could easily upend the existing powers in the coming decades.

For consumers and citizens, the consolidation of private power generally means they will incur higher costs, and historically, consumer efforts have ﷽been effective over time at stopping some oཧf the abuses of power that result from industry consolidation.

Frequently Asked Questions

Is the automobile industry an oligopoly?

Automobile manufacturing is an example of an oligopoly, with the leading auto manufacturers in the United States being Ford (F), GM, and Stellantis (the new iteration of Chrysler through mergers). Worldwide there remain perhaps just a dozen key automakers including Toyota, Honda, Volkswagen Group, and Renault-Nissan-Mitsubishi.

What is a homogenous oligopoly?

A ꦡhomogenous, 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.

What is a differentiated oligopoly?

Unlike a homogenous oligopoly, a differential one involves firms that produce close, but not perfect 澳洲幸运5官方开奖结果体彩网:substitutes. For example, car companies all produce vehicle🥂s, but a luxury car is not a perfect substitute for a rugged pickup truck.

How does the prisoner's dilemma relate to oligopoly?

The 澳洲幸运5官方开奖结果体彩网:prisoner's dilemma is a scenario in 澳洲幸运5官方开奖结果体彩网:decision analysis and game theory in which two actors, acting in their own self-interests do not produce the optimal outcome. For firms in an oligopoly, the problem is that each individual firm has an incentive to undercut the others—if all firms in the oligopoly agree to jointly restrict supply and keep prices high, then each firm stands to capture substantial business from the others by breaking the agreement undercutting the others. The result is a sub-optimal outcome for all firms involved.

What is a Cournot oligopoly?

The 澳洲幸运5官方开奖结果体彩网:Cournot oligopoly model is a popular model to depict conditions of 澳洲幸运5官方开奖结果体彩网:imperfect competition. lt describes an industry structure in which rival firms offering identical products compete on the amount of output they produce, independently and at the same time. The idea that one firm reacts to what it believes a rival will produce forms part of the perfect competition theory.

The Bottom Line

Oligopolies exist naturally or can be supported by government forces as a means to better manage an industry. Customers can experience higher prices and inferior products because of oligopolies, but not to the extent they would through a monopoly, as oligopolies still experience competition. The majority of the industries in the U.S. have oligopolies, creating significant 澳洲幸运5官方开奖结果体彩网:barriers to entry for those wishing to enter the marketplace.๊