My main areas of expertise include software technologies, business strategies, competitive analysis, and staying up-to-date with market trends. Sony, Panasonic, and Sharp The three major Japanese electronics companies once dominated the global television market. However, in the 2010s, their dominance faced a challenge due to rising competition from South Korean and Chinese manufacturers like Samsung and LG.
Oligopoly refers to a market situation in which there are a few firms selling homogeneous or differentiated products. Oligopoly is, sometimes, also known as ‘competition among the few’ as there are few sellers in the market and every seller influences and is influenced by the behaviour of other firms. The consequences of oligopolistic market structures in India are mixed. In some sectors such as the paint industry and electronic items like TVs and refrigerators, the price increases have been relatively lower. However, that is not true for sectors such as telecommunication, healthcare, media and entertainment, education, and aviation. Over the past decade, India has witnessed the emergence of an oligopolistic market structure.
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Instead, they can achieve higher profits by coordinating and cooperating on particular aspects of business, such as setting prices or limiting customer options. Oligopolies exist in several industries from mass media and entertainment to carmakers and airlines to segments of big tech. Industries where smaller companies have been bought out or merged, or where large corporations dominate, tend to have oligopolies. Oligopolies tend to arise in an industry that has a small number of influential players, none of which can effectively push out the others. These industries tend to be capital-intensive and have several other barriers to entry such as regulation and intellectual property protections.
However, AT&T is currently the biggest American telecommunication company in terms of revenue. In 2019, it produced a total revenue of over $181.19 billion, which is nearly $50 billion higher than the revenue generated by the runner-up, Verizon. Air transportation is a thriving industry, taking millions of people to locations around the globe.
Importance of Market Structure: Oligopoly
Its primary products include pesticides, herbicides, insecticides, fungicides, and biofuel. While Southwest Airlines is the world’s largest low-cost carrier, with over $21 billion in annual revenue, United Airlines operates a large domestic and international route network spanning six continents. American Airlines is the world’s second-largest airline based on sales, reaching $44.9 billion in revenue in 2019. Delta Air Lines, with over 5,400 daily flights, is the second-largest airline in the US.
Media Industry
Sony Music is the largest of these “Big Three,” generating an annual revenue of over $7.27 billion. Universal Music Group is one of the most innovative music companies that has signed licensing agreements with over 400 platforms worldwide. Warner Music Group employs more than 3,500 people and has an annual revenue of over $4.4 billion. The US is the second-largest smartphone market after China, with over 260 million users. As of 2020, Apple and Samsung dominate the smartphone market in the country, with 46% and 25% percent of the market share. Next to these companies are LG and Motorola, with a market share of 12% and 7%, respectively.
- According to the American Customer Satisfaction Index, all Apple iPhone and Samsung Galaxy models rank the highest.
- In spite of increasing demand, the oligopolistic nature of the cement sector gives manufacturers the ability to calibrate prices by controlling supply.
- But because the only competitors are a small number of airlines, and customers who need to travel long distances or overseas don’t generally have options other than flying, prices still stay relatively high.
- This means that unlike in a monopoly, where only one company is the godfather, different establishments sell similar products to cater to the consumer in an oligopoly.
- In the context of the social media industry, a small number of large companies have significant control over the market.
Barriers to Entry of Firms:
A recent study finds that drug prices and the profitability of domestic pharmaceutical firms have grown post-Covid. The cumulative wealth of pharma billionaires doubled after 2018, and 15 of India’s top 100 billionaires are from the sector. The study covered data from six pharma and diagnostics companies, and demonstrated a spike in overall profit and revenues between 2011 and 2021. The size of the national output and scale of operation grow with formalisation, and this may in turn attract foreign direct investment. In fact, government is encouraging competitive manufacturing through the production-linked incentive (PLI) scheme.
Between 2009 and 2019, the global aviation industry’s revenue grew at a CAGR of 5.3%, reaching $838 billion in 2019. Apple and Samsung lead the market not only in terms of sales but also in user satisfaction. According to the American Customer Satisfaction Index, all Apple iPhone and Samsung Galaxy models rank the highest.
A café served coffee with artistic foam designs, while another was famous for its live music in the evenings. Thus, Indian policymakers should not hesitate to prioritise the creation of such a business environment. This has led to some of the major technology advanced foreign firms shying away from investing in India. For example, Taiwan based Foxconn Technology Group pulled out of a deal with Vedanta to jointly manufacture semiconductor in India.
- Because at the state of equilibrium ON is the level of output and MC intersects the MR curve at this level.
- As firms are inter-dependent, a firm cannot ignore the reaction of the rival firms.
- Not only that, additional restrictions issued by the government of India further prevent aspiring companies to even attempt to compete.
- And that always increases in proportion to the ferocity of the battle in the marketplace.
- This is, however, generally not the case and prices have only been reduced in the recent past if there has been a reduction in Government taxes, either at the Central or State level.
- In the long run, firms in an oligopoly tend to reach an equilibrium where prices are stable, and firms continuously adjust their strategies to maintain or grow their market share.
The two companies offered similar products, so they constantly tried to outdo each other with better pricing or improved features, but they were careful not to push too far. They knew that if they entered into a brutal price war, both could suffer, and in the worst case, one could be driven out of business, leading to a monopoly. A lower per unit price also ensures that the government generates more revenue as consumers purchase larger quantities of goods at a reduced price. Oligopolies usually arise in industries where it is difficult for new competitors to get started. Media companies, airlines, and tech companies are examples of oligopolies. The concentration ratio measures the market share of the largest firms in an industry and is used to detect an oligopoly.
Customers can experience higher prices and inferior products because of oligopolies. However, this does not happen to the extent that it would through a monopoly, as oligopolies still experience competition. This is the conclusion of a price war in which one firm emerges as the winner.
Unlike in perfect competition, firms in an oligopoly are interdependent, which opens up the possibility of collusion and the formation of cartels. While each of these companies has a large market share, that’s not enough by itself to determine if an industry is an oligopoly. One of the key characteristics of an oligopoly is that the actions of one company significantly affect the rest of the industry. For example, if an increase in Coca-Cola’s prices prompted other soft drink makers to raise their prices in response, that could be a sign that Coca-Cola has an oligopolistic role in the soft-drink industry. In an oligopoly market, price competition and product competition is equally important. Every firm focuses on pursuing the consumer with new and different features, every time company comes up with a new thing in the market.
Therefore, it takes a lot of firm resources on an advertisement on frequent bases. These industries produce products that are close to each other but each product has different characteristics. More churn and disruption is likely to happen across India Inc. over the next couple of years, as companies with weak operational and financial capabilities make way for better run or ‘better-connected’ companies. But whether they tilt the balance in the market in their favour only time will tell. Earlier in 2018, the CCI oligopoly examples in india found Google violating the provisions of competition law for abusing its dominant position in the online search market and imposed a penalty of Rs 136 crore. Much has also been said about Gautam Adani and his turn of fortune since 2014.
Let us take the media sector in the US, where 5-6 players are capturing almost 90% of this sector. And, the rest 10% share of the market is shared by other small firms. Apart from three, there are hardly any players in this sector as they command almost 100 % of the global market share. Regardless of the brand of computer, the operating system will always be sure from any of those described above three. As discussed before price in an oligopoly is fixed with the mutual understanding between the firms and neither of the firms indulge in reducing prices. It has disadvantages to the economy, consumers, and the firm as well.
If the firms produce differentiated products, then it is called differentiated or imperfect oligopoly. The goods produced by different firms have their own distinguishing characteristics, yet all of them are close substitutes of each other. If the firms produce homogeneous products, then it is called pure or perfect oligopoly. Though, it is rare to find pure oligopoly situation, yet, cement, steel, aluminum and chemicals producing industries approach pure oligopoly. Collusion occurs when firms in an oligopoly secretly cooperate to set prices, limit production, or otherwise manipulate the market to achieve higher profits than they would in a competitive setting.