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Definition

oligopoly

An oligopoly is a small group of companies that dominate a given market. According to some economists, an oligopoly exists if five or fewer companies control 60 percent or more of their particular market. A market controlled by a single company is a monopoly; one dominated by two major competitors is known as a duopoly.

Oligopolies may happen naturally and, if the companies involved are purely competitive, don’t tend to negatively impact the market for consumers. However, in some cases the dominant companies enter into agreements with each other as a way of controlling the market. Collusion among companies in a given market typically leads to higher prices for consumers. Other effects can include suppression of competition and innovation and degradation of service.

A cartel is an official oligopoly that collaborates to set production levels and prices. OPEC (Organization of Petroleum Exporting Countries) is the most commonly seen example of a cartel.

This was last updated in April 2019

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