Oligopoly

An oligopoly describes a market situation in which there are limited or few sellers. Each seller knows that the other seller or sellers will react to its changes in prices and also quantities. This can cause a type of chain reaction in a market situation. In the world market there are oligopolies in steel production, automobiles, semi-conductor manufacturing, cigarettes, cereals, and also in telecommunications. Often times oligopolistic industries supply a similar or identical product. These …

…with the prices of goods and they keep lowering their prices. At the time these price decreases are beneficial for consumers; however, an oligopoly can afford to lower their prices and the smaller firms can not. As a result these smaller firms might be annihilated and enable the oligopoly to dominate the industry. If the oligopoly comes to dominate their industry they then have the ability to set prices higher, a terrible aspect for consumers.