Why Do Oligopolies Exist?
Competition is essential for a market to exist. That is why monopolies are not encouraged. But, there is also such thing as oligopoly. Why do they exist?
Oligopoly is a market structure in which only a few companies own or control the industry. Oligopolies exist because the control over the supply of commodity is in the hands of a few producers. They can influence the prices as well as the competition.
It is a result of a mutual dependency between a few companies owning industries. In such state, they each have a say on whether the price remains low or high. One’s decision on the pricing greatly affects the other, but they remains on a healthy competition because they have control. But, it does not affect the market.
In an oligopoly entry of a new competitor is not easy. Thus, it exists because it is a way to guard security amongst the few who are in control. Oligopoly also exists because of high barriers such as the need for a capital. Companies such as cars, oil or others of the same nature, takes a lot of money to put up. Not many can afford to start such industry. That is when oligopoly structure starts to exist.
The very few who are in control having so much at stake, will do whatever it takes to remain in the market. Oligopoly is a way to keep up and make sure everything they put up will remain of profit for them.
Moreover, oligopoly exists for companies to work together and make sure they gain profit. It is a reality that only a few has what it takes to build big companies. One common example are the oil companies wherein only a few owns. Thus, the price remains high for it is in the hands of an oligopoly system.