Oligopoly Market Definition, Characteristics, Types, & Examples

MARKETING, ACTIVELYSHARE.COM — Oligopoly Market – Everyone has different needs, so when they want to fulfill those needs, they need to buy them. Before buying and selling transactions, fellow human beings exchanged their goods or often known as barter.

Before fellow human beings barter, it must be in accordance with the agreement of two or more parties so that it is mutually beneficial and both parties are equally happy.

Basically this bartering activity continues to develop, until in the end an exchange of goods becomes a buying and selling transaction.

Currently, buying and selling transactions are often used in the market, so many people think that buying and selling transactions are also included in market activities.

Buying and selling transactions carried out by humans in the market are not all the same, so there are lots of traders who aim to meet the needs of humans.

The number of traders raises a competition between producers, so that it often creates unhealthy competition. This unfair competition usually only benefits one or a few producers, so that market activities become unbalanced.

Basically, there are several types of unhealthy or imperfect competition market, one of which is oligopoly. Oligopoly can make trade competition imperfect because prices can be determined at will by producers or sellers, especially for producers who already have names or brands that are well known to the public, so that other producers will find it difficult to compete.

Well, to find out more about oligopolies, you can learn from this article. So, what are you waiting for, read this article right away.

Understanding Oligopoly Market

It is common practice that if you want to know something, it should be done by recognizing its meaning first. As with information about oligopolies, we need to recognize and understand oligopolies through their understanding.

Oligopoly is a market condition with only a small number of producers of goods supply, so that they or one of them can influence market prices or market conditions that are not balanced because they are influenced by a number of buyers.

Meanwhile, quoted from Investopedia, oligopoly is a market structure in which there is only a small capacity or only a handful, but can significantly affect market conditions.

In Law Number 5 of 1999, oligopoly is included in an agreement that is prohibited by the government. This is stated in Article 4 which reads “Business actors are prohibited from entering into agreements with other business actors to jointly control the production and or marketing of goods and or services which may result in monopolistic practices and or unfair business competition.

In fact, in the same article as stated in paragraph 2, it is also explained about producers or business actors suspected of having entered into oligopoly agreements.

The article reads “Business actors should be suspected or deemed to have jointly controlled the production and or marketing of goods and or services, if two or three business actors or groups of business actors control more than 75% of the market share or one type of certain goods or services.

An oligopoly market can indeed be regarded as an unhealthy or imperfect market activity, but in reality, this type of market is competitive for the same product between one producer and another.

This can happen because fellow producers maintain the quality of their products so that their names or brands are not inferior to other manufacturers.

Thus, oligopoly can be said as a form of imperfect or unhealthy trade competition because some sellers or producers already have many buyers. Until now, there is no definite provision regarding the number of companies that are incorporated in an oligopoly market.

Oligopoly Characteristics

So that it is not so difficult to understand oligopoly, we need to know oligopoly through its characteristics. The following are the characteristics of an oligopoly.

1. Consists of Two or More Companies

Consisting of two or more companies is the first characteristic of an oligopoly. However, oligopoly can only be realized if the number of companies or producers is less than 10%.

With these characteristics will lead to an imperfect trade competition because the products that are in demand in the market only come from producers or companies whose “name” or brand is already known by many people.

Therefore, the state makes a law regarding agreements that should not be carried out in the market world.

This is done so that oligopoly can be avoided, so that economic growth in a market can run well and old or new producers can compete fairly.

2. Products traded are usually homogeneous

Products that are traded are homogeneous, which is the second characteristic of oligopoly. In these characteristics, producers usually only produce and sell one product.

In other words, goods or products from one product to another can replace each other, so that consumers are not so difficult to get a homogeneous product.

In Indonesia, there are several products that are homogeneous or can be replaced, one of which is cigarettes.

Things like this can be seen when there is a type of cigarette that does not sell well in the market, it will be replaced with the same product (cigarettes), but with different variations.

3. Prices between products are almost the same

This relatively equal product price is the third characteristic of an oligopoly. In general, the price of goods or services in this oligopoly market is not much different or almost the same.

In this case, the meaning of almost the same price is that the price of a product or service sold by one producer to another is not much different. Prices are almost the same because the number of producers is not many.

In general, if the price of a product from one producer increases, then the product from another producer will also increase.

Therefore, when you look at the price of cigarettes from one type to another, the price is not that far away.

4. Requires a Mature Marketing Strategy 

A mature marketing strategy is the fourth characteristic of an oligopoly. In an oligopoly market, competition will be even tighter because there are very few producers who “play” in this market and fewer products or goods are produced.

Therefore, for producers who have entered the oligopoly market, they must have a mature marketing strategy in order to be able to compete with other producers.

If the producer or company does not carry out or make careful strategic planning, then the company will lose competitiveness with other companies.

The wrong strategy can also cause consumers to switch to other products, so that the goods or services become unsold.

5. A Rule of a Company or Manufacturer may affect the Manufacturer 

Other

The existence of an influence on other producers due to the policies of the main producers is characteristic of an oligopoly. In an oligopoly market, the main producer can be said to be the policy maker.

Simply put, if the main producer determines the price of a product, then other producers will follow the price that has been set by the main producer. Not only the price, but changes in the function of a product can also affect other manufacturers.

Therefore, in an oligopoly market, “ordinary” producers must be well prepared to follow changes in a policy that originates from the main producers.

If “regular” producers cannot keep up with the main producers, they are likely to lose out on competition with other companies.

6. New Producers Will Have Difficulty Entering the Market

Producers find it difficult to enter the oligopoly market, which is the sixth characteristic of oligopoly. For new producers, it will be difficult to enter the oligopoly market, so that many new producers narrow the market, make small profits, or even go bankrupt.

Manufacturers who went bankrupt because the products they sell are not able to compete with old producers who already have a market price and a well-known brand.

With the difficulty of new producers to enter the market, it means that the market can be said to have an unhealthy competition. If things like this happen continuously, the oligopoly market will find it difficult to find new producers.

Types of Oligopoly Markets

We also need to know some types of oligopoly. Oligopoly has several types, including:

1. Pure Oligopoly Market

A pure oligopoly market is a market that only sells one good. Even though there is only one item, there are quite a lot of variants of the item.

Meanwhile, the price of one item with another item is almost the same. In this type of oligopoly market, almost every policy is influenced by the main producer. That is why this type of oligopoly market is called a pure oligopoly market.

2. Differentiated Oligopoly Market

A differentiated oligopoly market is a market that only sells one type of product. However, the price of one type of goods is not the same as the price of other producers or companies.

Simply the price from one producer to another will experience differentiation. If this happens, the oligopoly market will become increasingly unhealthy, because consumers prefer relatively cheap prices, but good quality goods.

3. Non Collusion Oligopoly Market

Non-collusion oligopoly market is a market where if there are companies that want to play the price of an item or service, they need to pay attention to the conditions or developments that occur in other companies (competitors). In an oligopoly market, this needs to be done by a company because it aims so that the business it is running experiences development and other companies cannot follow the price competition.

4. Collusion Oligopoly Market

An oligopoly market is a market where almost every producer or company cooperates. Usually this cooperation step is done when you want to increase the price of a product or service. Things like this will show that the competition from one producer to another is not that far away.

Oligopoly Examples

Not only through understanding, types, characteristics, but when we want to explore what oligopoly is, we need to know some examples of oligopoly. Below are some examples of oligopolies.

1. Cigarettes

As we know that in Indonesia, the cigarette industry is almost non-existent or you could say there will always be consumers. The number of consumers who smoke makes cigarette manufacturers or companies vying to sell these products. Within the same brand there are several types of variants.

Although only cigarettes are sold, it turns out that cigarette manufacturers compete with each other, either from price or from the quality of the cigarettes themselves.

2. Aviation Services

For those of you who often go out of town or abroad using airplanes, you must know that there are many names of planes. Each aircraft name has its own advantages and disadvantages, so it can be said that each has its own market share.

However, if the market share is not maintained properly, the airline could suffer losses or go bankrupt.

3. Buying a Motorcycle

In this increasingly modern and faster era, the use of motorcycles is quite a lot, so that it becomes a target market for motorcycle manufacturers.

Buying and selling motorcycles is an example of an oligopoly market because there are already various companies selling the same product (motorcycle), but with different brands.

4. Cement

When building a house, usually we will need building materials, namely cement. Cement itself can be used to unite building materials, such as brick, hebel, red brick, and others.

The more people who build houses, the more cement will be used. The producers are ready to compete to produce quality cement products at affordable prices.

5. Mobile

Theuse of cellphones in this modern era has often been used, in fact almost everyone has a cellphone.

This is because mobile phones can be regarded as one of the necessities that must be fulfilled because with this device, we will be able to establish communication with people who are far away. Mobile phone products have been sold in the market and the prices vary greatly.

6. Telecommunication Operators

Each operator or card provider will have advantages and disadvantages of each, so that each manufacturer of telecommunications operators will compete to get a lot of consumers.

Therefore, each producer of telecommunications operators makes a careful marketing plan, namely an affordable price with stunning quality. With this competition, it can be said that every telecommunication operator already has a marketing strategy and there is a fairly tight competition.

7. Instant Noodles

Almost everyone likes this instant noodle, especially for those who are boarding . Instant noodles itself can be used as a snack when the stomach is feeling hungry or used as a side dish of a dish, such as lunch. In Indonesia, there are quite a number of instant noodle companies, so it is not uncommon for consumers to experience confusion which one to choose.

Companies or manufacturers begin to see this market share begin to increase the advantages of a product in the hope that the product will continue to run.

Conclusion 

Basically, oligopoly is indeed an imperfect competition, so for new producers it will be difficult to enter this oligopoly market.

However, on the other hand, maintaining a company in an oligopoly market is not easy because it requires careful marketing planning. Therefore, only a few producers are able to survive in an oligopoly market.

That’s the whole discussion about Oligopoly Market, with its definition, characteristics, types and examples of Oligopoly Market, hopefully it’s useful for you, please tell about this post to your family, kind, friends and folks who knows they need this, see you again in the next posts about Economy, Management, Accounting, and Business from ActivelyShare.Com in the future.


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