Why do you think most of the industries today are oligopolies?

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Q. Why do you think most of the industries today are oligopolies?

Oligopoly is a market structure in which there are a few large firms with a concentrated market share, an example of an oligopoly today would be Nike, Reebok and Adidas for shoes.

Most industries today are oligopolies, the possible reasons for this would be that oligopolies in contrast to monopolistic competition would be able to earn abnormal profits in the long run as well as the short run, as shown in the previous section

 The reason for this is that there are barriers to entry and exit to potential firms. Examples of these barriers would be, high capital costs i.e. start up costs for new firms because the existing firms are already operating in a large market and are well established, they would have created a brand image and would have brand loyalty therefore new firms will find it hard to capture the market. Another barrier would be sunk costs i.e. the costs that are not recoverable if the firm decides to close down, e. g new firm would buy raw materials, machinery and would advertise to keep up with competition, if it decides to close down it can get back the costs of the machinery and raw materials by selling it off but it cannot recover the advertising costs.

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Existing firms would also enjoy economies of scale like, technical economies in which they would have access to improved technology and would be making much better use of it as they are operating on a larger scale, but new firms will face high costs in employing the new technology, thus they would have to price their products differently.

These are just a few of the potential barriers that could exist, and they deter new firms from entering the industry thus existing firms enjoy abnormal profit in the long run. This would prove to be a major incentive for firms to ...

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