Chapter - 21

OLIGOPOLY

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 Definition: An oligopoly is a market dominated by a few large firms.

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 Others
17%
Tesco
28%

Morissons
15%

Sainsbury's
18%
Asda
22%

fig - 1: Market share of firms in the UK supermarket industry

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 fig-2: Market share held by firms in the US car industry

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 Q) With reference to Figure 1 and 2, explain what is the market structure of
the UK supermarket industry and the US car industry.
Ans: The UK supermarket industry and the US car industry are oligopoly
market structures where few large firms dominate the market. In the UK
supermarket industry, three of the large firms hold 68% of the market;
similarly, in the US car industry, five of the largest firms hold 73% of the
market share.

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 □Characteristics of Oligopoly:
1) Firms are interdependent, meaning that the actions of one firm
will affect the others in the market.
2) There are high barriers to entry. For example- cost barriers.
3) High competition through non-price competition to avoid price
war. For example - large amounts are spent on advertisement.
4) Collusion occurs when firms restrict competition by fixing the price
or level of output.

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 Q) Assess the impact of oligopoly market structure on consumers.
Ans: Oligopolies may provide lower prices to consumers because they
experience economies of scale, there is consumer choice and the product are
usually of good quality as the firms use non-price competition to avoid price
wars.
On the other hand, due to fierce non-price competition a lot is spent on
advertising which leads to increased cost for the firms, so prices may rise in the
future. The firms may also engage in price wars which will lower prices for
consumers but if some firms are forced out of the market by the end of the
price war then there will be lower consumer choices and price may rise again.
Furthermore, oligopolies may collude or form cartels. This enables them to act
like a monopolist and together charge higher prices by exploiting consumers.
However, the drawback of oligopoly can be eliminated by government
intervention. Oligopolies benefit consumers as long as there are competitive
and carefully regulated by the government to protect consumer interest. For
example, in the UK, collusion is illegal to protect the consumers.

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21

 THE END

AUNTORIP KARIM - CLASS VIII ECONOMICS - CHAPTER 21