Oligopoly Market: Understanding, Characteristics, Types, and Diverse Plus-Minuses

  For a long time the market is known as one of the places to distribute or distribute goods that come from producers until they arrive to consumers. Through the market, producers are able to offer their production to consumers, either directly or indirectly.

The types of markets are actually diverse, there are so-called perfect competition markets and there are also so-called imperfect competition markets. Both types of markets certainly have different structures and ways of selling to their consumers. One example of an imperfect competition market is the oligopoly market.

Oligopoly Market: Understanding, Characteristics, Types, and Diverse Plus-Minuses

When compared to other types of markets, oligopoly markets can be classified as homogeneous or similar markets, and have very tight competition. However, what makes the oligopoly market have these characteristics? Well, to better understand it, consider the following explanation.

Understanding oligopoly market

Oligopoly market is a market that contains several sellers or producers who are not too many but have a relatively large number of buyers or consumers. That's why this market can be classified as one type of market with imperfect competition.

In general, every producer or seller in the oligopoly market is more active in marketing or promotional activities. The reason is because the goods sold can replace each other or are substitution, although not perfect. However, using special marketing techniques, sellers will try to form a perception of consumers regarding the difference between one product and another product sold in that market. 

You could say, competition in the oligopoly market is very tight. In fact, not infrequently producers or sellers who do everything in order to survive and be able to attract more consumers and profits.

For example, a manufacturer may sell his merchandise at a cheaper price than usual. Knowing this, other sellers will usually immediately follow and also lower the selling price. That way, the sellers will not lose consumers and lose competition with other sellers. 

What is the oligopoly market?

In the field of economic science, the market can be divided into several kinds of each of which has its own characteristics. Among other types of markets, oligopoly markets are difficult to distinguish. However, there are a number of special characteristics owned by this type of market, including the following.

Nature of products sold

As discussed earlier, products or goods sold in oligopoly markets are homogeneous or similar, and can be substituted between each other. Although goods sold in general are homogeneous, they can still be differentiated. For example, bath soap products that have different aromas and shapes, cell phones that have a different look or quality of technology, and so on. 

Producers in the Oligopoly Market

Regarding producers, oligopoly markets are usually controlled by one or two producers, followed by other smaller producers. Policies of producers or sellers who control the oligopoly market will generally greatly affect the policies or selling prices of other producers. For example, price changes and innovations of the products sold.

On the other hand, every seller has the ability or advantage that is able to determine the price. The cause is because the products sold or offered usually have their own differences and advantages. 

Unfortunately, new sellers or producers in the oligopoly market will usually have difficulty entering the market because old sellers can play price games to attract consumer purchasing power. This strategy is known as predatory pricing, that is, when old sellers lower the selling price of products massively.

Another problem that is often experienced by new sellers who want to enter the oligopoly market is the need for capital is not small. Consumer loyalty is also one of the important things for sellers in this type of market.

Therefore, advertising and promotional activities or strategies, as well as continuous innovation need to be done. Of course, all these things require a considerable amount of capital and often make it difficult for new sellers or producers. 

Selling Price of Products

The last oligopoly market characteristic is seen from the selling price of its products. In this type of market, price wars are common. For example, when there are sellers who plan to cut the selling price of their products to get more consumers, other sellers will follow suit immediately. Thus, the market share gained in the end remains the same.

The occurrence of this of course makes the price system in the oligopoly market rigid. As a result, dependence on sales actions and strategies is inevitable. Generally, the selling price of products in oligopoly markets follows the price of producers who are considered the most marketable products in the market or classified as large producers.

As a result of this rigid system, you can realize that the selling price of goods in the market is relatively equivalent, or has very little difference. 

Types of Oligopoly Markets

Based on its type, the oligopoly market can be divided into 2, namely:

Pure Oligopoly Market

This type can also be referred to as pure oligopoly because it has a number of manufacturers whose sales products have the same or identical properties so it is difficult to distinguish. The way to distinguish a product from a seller or manufacturer in a pure oligopoly market is to see or recognize the trademark of the product.

Examples of pure oligopoly markets, among others, mineral water, zinc, pipes, and so on. 

Differentiated Oligopoly Market

As for the differentiated oligopoly market, it can also be called differentiated oligopoly, which is a market that has a number of producers who peddle similar or homogeneous products. The quality of products from this market is generally difficult to distinguish, but can still be seen from the pattern.

In this case the pattern can mean a difference in shape, aroma, or taste. Examples of this industry include soaps that have different shapes and aromas, cigarettes with unique flavors, and motorcycles that have shapes, designs, and other things that can be distinguished.

Advantages of oligopoly market

• Consumers can choose products that suit their wants and needs because the market has many choices.
• Consumers are able to get standard prices because price control and competition are tight enough that the potential for monopoly is very low.
• Manufacturers focus more on customer satisfaction and try to provide the best service and affordable prices so as not to lose to competitors.
• High potential for innovation and product development due to intense business competition.
  

Oligopoly market shortage

• It is difficult for new producers or sellers to compete in it.
• There is a price war between manufacturers to lure customers.
• The actions of large producers greatly affect market conditions and other producers inevitably have to follow.
• It takes a lot of money to be able to do promotions.
• Waste on economic resources.
  

The Majority of Everyday Products Are Examples of Oligopoly Market Forms

That is the definition of oligopoly market, types, advantages and disadvantages, as well as its characteristics. If you are aware, there are many everyday products that are examples of oligopoly markets, such as, bath soaps, mineral water, and so on. So, oligopoly markets are actually not new to society because in fact their daily life has coexisted with this type of market.