Which Helps Enable An Oligopoly To Form Within A Market

Which Helps Enable An Oligopoly To Form Within A Market?

Strategy 23 November 2023 4 Mins Read

Question: which helps enable an oligopoly to form within a market?

A) The costs of starting a competing business are too high.

B) The government restricts market entry.

C) The number of options in a market confuses consumers.

D) No competition exists between producers

Answer: The costs of starting a competing business are too high.

An oligopoly is a market condition that few companies in an industry can form. So, what are the conditions that form such market conditions in an economy?

In this article, I have provided the answer to your query related to oligopoly and keep reading to learn about the answer in detail. 

Which Helps Enable An Oligopoly To Form Within A Market? Answer Explained!

You already have the answer to this question. Here is an answer explanation for more clarity. In an Oligopolistic market, the market has only a few numbers of firms that dominate and compete in the market. Such markets have a high-cost entry barrier that most startups cannot afford. 

An oligopolistic market makes it easier for businesses to charge higher prices for their goods and services. This way, they can also make more profit compared to a market in perfect competition. 

In an oligopoly market, large companies dominate the market, leaving little room for competitors. The reason why an oligopoly market exists is because the cost of starting a business and entering the competition is too high. 

Starting a business is not only difficult, it also requires significant investment. A startup would require the starting capital, money for research and development, and for employing human resources. 

Since an oligopolistic market has a market with high entry barriers, new companies find it impossible to start. So, there is a lack of competition, which goes on for decades in the industry. 

Oligopoly can be present across different industries, starting from energy to healthcare and consumer goods. In all the scenarios, the high cost of starting a business prevented any real competition from budding and blooming.

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What Conditions Enable Oligopoly?

Only fewer than a few companies have a strong position in an oligopoly market. Monopoly can be possible only if there is a large market share for different companies to make profits and compete effectively against each other. 

So, what enables oligopoly? Here are a few conditions that are mandatory for an oligopoly to exist in a market –

  • Monopolistic Competition
  • High demand
  • Low prices for goods & services 

A market with oligopoly shows few companies with a large portion of the market percentage. Companies often give discounts on their high-priced products to increase sales and make a profit. Moreover, oligopoly is unstable, and it may collapse when new companies or more customers enter the market. 

How Does an Oligopoly Form?

An oligopoly market condition has a small number of companies that control a large share of the entire market. It can be created by both the purchase and the sale of businesses. Oligopolies can bind competition and innovation in an industry. It can result in fewer alternatives and choices for the consumers to look for in the market. Thus, a society can also be harmed.

This market condition can come into existence when there are fewer companies in the market, only a few that dominate the market. Different companies in an industry can form an oligopoly by buying out other firms and companies. Companies can also form an oligopolistic market by having a dominating presence in the market. These companies are also unable to compete with each other. 

Things That Make A Market Oligopoly

Oligopolistic markets have only a few of the companies offering products or services. These companies are the sole providers of specific products and services. Thanks to that, they have the incentives to stay in the market.

It would be necessary for some companies to provide the products and the services in the market to participate in the market and keep it from becoming too strong. 

What Is The Most Important Feature Of Oligopoly?

The major feature of oligopoly is that such market condition allows only a few companies to have control over a huge market share. A market called oligopoly has too many companies competing for the same customer in the market. 

Such market conditions can give rise to a lack of competition, a high price rise, and a lack of competition. Also, when there is a lack of competition due to low competition, product quality is bound to go down. 

Different Types Of Oligopoly

Here are different main types of oligopoly market structures – these depend on the relationship between companies inside the market. 

  • The first one is Perfect Oligopoly. perfect oligopoly suggests that companies provide homogenous products (for example, the steel industry);
  • Imperfect oligopoly suggests that firms manufacture differentiated products and services (for instance, cigarettes and soft drinks);
  • Collusive oligopoly is the third type of oligopoly market. It requires companies in the market to cooperate in deciding the price and output;
  • Non-collusive oligopoly happens when firms within an oligopolistic market are in competition with each other.

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Bottom Line

Which helps enable an oligopoly to form within a market? The answer to this question lies in the difficulty of entering a market due to high entry costs. If you were looking for the answer related to this question, then this article should have helped you. However, you can check out our complete guide to oligopoly. 

Let us know your feedback through the comment section. Thank you for reading.

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Barriers To Entry Economic Concentration Oligopoly Formation Oligopoly Market Characteristics

Shahnawaz is a passionate and professional Content writer. He loves to read, write, draw and share his knowledge in different niches like Technology, Cryptocurrency, Travel,Social Media, Social Media Marketing, and Healthcare.

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