What does oligopoly mean?
An oligopoly is a market in which a small number of firms account for most of the supply of a good or service. Because there are relatively few competitors, each company can influence prices, output, and market conditions, but it must also consider the reactions of its rivals. The term does not automatically imply that the firms have formed a cartel or otherwise acted illegally; concentrated markets can develop through ordinary competition, mergers, or barriers to entry. An oligopoly is therefore commonly associated with a duopoly, where two firms dominate, but it can involve three or more participants. The concept is important in economics because it helps explain why competition, innovation, consumer prices, and firms’ strategic behavior may differ from those found in a market with many small competitors.
nounA market structure in which a small number of firms control the supply of a good or service, giving each participant significant market power. The term can also refer to the group of firms that dominates such a market.
- A market dominated by a small number of large firms, each of which has considerable influence over prices and output.
- The group of firms that collectively dominates such a market.
"The merger created an oligopoly in which three companies controlled most of the market."
"The airline industry developed into an oligopoly dominated by a handful of large carriers."
"Economic analysts warned that the acquisition would strengthen the resulting oligopoly and reduce competition."
The plural is used when referring to multiple concentrated markets or groups of dominant firms.
"Telecommunications oligopolies have developed in several countries."
Oligopoly is the market shape behind many familiar industries: a few major players, intense competition, and prices shaped by their mutual awareness.
Reviewed by Deb Chak, Editor. AI-assisted content curated by RJS Tech Solutions LLP.
Where does oligopoly come from?
The word combines the Greek roots oligos, meaning “few” or “little,” and polein, meaning “to sell.” It was formed in the early 20th century by analogy with monopoly, with the prefix distinguishing a market controlled by several firms from one controlled by a single seller. Its elements are also found in cognates such as oligarch and oligarchy, which refer to rule or power exercised by a small number of people.
Related word forms
How oligopoly is actually used
Usually formal or academic. It is most commonly used for industries or markets in which a few firms hold substantial shares, and it does not necessarily imply collusion. In everyday discussion, it is sometimes used more loosely to describe any highly concentrated market.
Easily confused with oligopoly
A monopoly is controlled by one supplier, whereas an oligopoly is controlled by a small number of competing suppliers.
A duopoly is an oligopoly with exactly two dominant firms.
An oligopoly is a market structure that may result from independent competition, whereas a cartel is an explicit agreement among firms to restrict competition.