Oligopoly Market: Definition, Characteristics, Types, & Examples

Oligopoly Market – Everyone has different needs, so when they want to fulfill those needs, they need to buy them. Before there were buying and selling transactions, fellow humans exchanged the goods they owned or often known as barter. Before fellow human beings barter, it must be in accordance with the agreement of both parties or more so that it is mutually beneficial and both parties are equally happy.

Basically this barter activity continues to experience development, until in the end an exchange of goods becomes a sale and purchase transaction. Currently, buying and selling transactions are often used in the market, so not a few people think that buying and selling transactions are also included in market activities.

Buying and selling transactions carried out by humans in the market are not all the same, so there are lots of traders who aim to meet the needs of humans. The large number of traders raises a competition between producers, so that it often creates unhealthy competition. This unhealthy competition usually only benefits one or a few producers, so that market activities become unbalanced.

Basically, there are several unhealthy or imperfect competitions, one of which is oligopoly. Oligopoly can make trade competition imperfect because prices can be set at will by producers or sellers, especially for producers who already have names or brands that are well known to the public, so that other producers will find it difficult to compete.

So, to find out more about oligopoly, you can listen to this article, Sinaumed’s. So, what are you waiting for, immediately read this article until it’s finished.

Definition of Oligopoly Market

It has become commonplace when you want to know something, you should do it by recognizing its meaning first. As with information about oligopoly, we need to recognize and understand oligopoly through its understanding. In the Big Indonesian Dictionary (KBBI) oligopoly is a market condition with only a few producers supplying goods, so that they or one of them can influence market prices or an unbalanced market condition because it is influenced by a number of buyers.

Meanwhile, quoted from Investopedia, oligopoly is a market structure in which there is only small capacity or only a handful, but can significantly affect market conditions.

In Law Number 5 of 1999, oligopoly is included in an agreement that is prohibited by the government. This is stated in article 4 which reads “Business actors are prohibited from entering into agreements with other business actors to jointly control the production and or marketing of goods and or services which may result in monopolistic practices and or unfair business competition.

In fact, in the same article and listed in paragraph 2 it is also explained about producers or business actors who are suspected of having entered into oligopoly agreements. The article reads “Business actors should be suspected or considered to be jointly controlling the production and or marketing of goods and or services, if two or three business actors or a group of business actors control more than 75% of the market share or one type of certain goods or services.

The oligopoly market can indeed be regarded as one of the unhealthy or imperfect market activities, but in reality, in this type of market, the competition for the same product between one producer and another is very tight. This can happen because fellow producers mutually maintain product quality so that their name or brand is not inferior to other producers.

Thus, oligopoly can be said to be a form of imperfect or unhealthy trade competition because some sellers or producers already have many buyers. Until now, there has been no definite determination regarding the large number of companies that are members of an oligopoly market.

Oligopoly features

So that it is not so difficult to understand oligopoly, we need to know oligopoly through its characteristics. The following are the characteristics of an oligopoly.

1. Consists of Two or More Companies

Consisting of two or more companies is the first characteristic of oligopoly. However, an oligopoly can only be realized if the number of companies or producers is less than 10%. With these characteristics, imperfect trade competition will arise because products that are best-selling in the market only come from manufacturers or companies that have a “name” or brand that is well known by many people.

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Therefore, the state makes a law regarding agreements that may not be carried out in the world market. This is done so that this oligopoly can be avoided, so that economic growth in a market can run well and old or new producers can compete healthily.

2. Products traded are usually homogeneous

The products that are traded or traded are homogeneous which is the second characteristic of oligopoly. In these characteristics, producers usually only produce and sell one product. In other words, one item or product with another product can replace one another, so that it is not too difficult for consumers to get a homogeneous product.

In Indonesia, there are several products that are homogeneous or can be replaced, one of which is cigarettes. Things like this can be seen when there is a type of cigarette that is not selling well in the market, it will be replaced with the same product (cigarettes), but with different variations.

3. Prices between products are almost the same

Relatively the same product prices are the characteristics of the third oligopoly. In general, the prices of goods or services in this oligopoly market do not differ much or can be said to be almost the same. In this case, the meaning of almost the same price is that the price of a product or service sold by one producer to another is not much different. Prices are almost the same because the number of producers is not so much.

In general, if the price of a product from one producer rises, then the product from the other producer will also increase. Therefore, when you look at the price of one type of cigarette with another, the price is not that far away.

4. Requires a Mature Marketing Strategy 

A mature marketing strategy characterizes the fourth oligopoly. In an oligopoly market the competition will be even tighter because there are very few producers who “play” in this market and the products or goods produced are also few. Therefore, producers who have entered the oligopoly market must have a mature marketing strategy in order to be able to compete with other producers.

If producers or companies do not carry out or make careful strategic planning, the company will lose competitiveness with other companies. The wrong strategy can also cause consumers to move to other products, so that goods or services become unsold.

5. A Rule of a Company or Manufacturer may affect Manufacturers 

Other

The existence of influence on other producers caused by the policy of the main producer is a characteristic of an oligopoly. In an oligopoly market, the main producer can be said to be the policy maker. Simply put, if the main producer determines the price of a product, then other producers will follow the price set by the main producer. Not only price, but changes in the function of a product can also affect other manufacturers.

Therefore, in an oligopoly market, “ordinary” producers must have proper preparation to follow changes in a policy originating from the main producers. If “ordinary” producers cannot follow the main producers, they will likely be unable to compete with other companies.

6. New Producers Will Have Difficulty Entering the Market

Producers find it difficult to enter the oligopoly market which is the sixth characteristic of oligopoly. For new producers, it will be difficult to enter the oligopoly market, so that not a few new producers narrow the market, make small profits, or even go bankrupt. Producers who go bankrupt because the products they sell are unable to compete with old producers who already have market prices and whose brands are well known.

The difficulty for new producers to enter the market means that the market can be said to have unhealthy competition. If things like this happen continuously, it will be difficult for the oligopoly market to find new producers.

Types of Oligopoly Market

We also need to know several types of oligopoly. There are several types of oligopoly, including:

1. Pure Oligopoly Market

A pure oligopoly market is a market that sells only one good. Even though there is only one item, the variants of the item are quite a lot. Meanwhile, the price of one item with another is almost the same. In this type of oligopoly market, almost every policy is influenced by the main producer. That is why this type of oligopoly market is called a pure oligopoly market.

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2. Differentiated Oligopoly Market

A differentiated oligopoly market is a market that sells only one type. However, the price of one type of goods is not the same as the price of other producers or companies. Simply put, the price from one producer to another will experience differentiation. If this happens, then the oligopoly market will become increasingly unhealthy, because consumers prefer relatively cheap prices, but good quality goods.

3. Non Collusion Oligopoly Market

A non-collusion oligopoly market is a market where if a company wants to play the price of a good or service, it needs to pay attention to the conditions or developments that occur in other companies (competitors). In an oligopoly market, this needs to be done by a company because it aims to make the business being undertaken experience growth and other companies cannot follow the price competition.

4. Collusion Oligopoly Market

An oligopoly market is a market where almost every producer or company cooperates. Usually this cooperation step is carried out when you want to increase the price of a product or service. Things like this will show that the competition from one manufacturer to another is not that far off.

Oligopoly examples

Not only through understanding, types, characteristics, but when we want to explore what oligopoly is, we need to know some examples of oligopoly. Below are some examples of oligopoly.

1. Cigarettes

As we know that in Indonesia the cigarette industry is almost never ending or you could say there will always be consumers. The large number of consumers who smoke, then make cigarette manufacturers or companies compete to sell these products. Within the same brand there are several types of variants. Even though only cigarettes are sold, it turns out that cigarette manufacturers are competing with each other, both in terms of price and the quality of the cigarettes themselves.

2. Aviation Services

For those of you who often go out of town or abroad using airplanes, you must know that there are many names of airplanes. Each aircraft name has its own advantages and disadvantages, so that it can be said that there is already a market share for each. However, if the market share is not maintained properly, the airline may suffer losses or go bankrupt.

3. Selling and buying motorbikes

This increasingly modern and faster era, the use of motorbikes is quite a lot, so that it becomes a target market for motorbike manufacturers. Buying and selling motorbikes is an example of an oligopoly market because there are already various companies selling the same product (motorcycles), but with different brands.

4. Cement

When building a house, we usually need building materials, namely cement. Cement itself can be used to unite building materials, such as adobe, hebel, red brick, and others. The more people who build houses, the more cement will be used. Producers are ready to compete to produce quality cement products at affordable prices.

5. Mobile

The use of mobile phones in this modern era is often used, even almost everyone has a mobile phone . This is because mobile phones can be regarded as one of the needs that must be met because with this device, we will be able to establish communication with people who are far away. Mobile phone products have been sold in the market and the prices vary widely.

6. Telecommunications Operators

Each operator or card provider will have their own strengths and weaknesses, so that each telecommunications operator manufacturer will compete to get a large number of consumers. Therefore, each telecommunications operator manufacturer makes a careful marketing plan, namely affordable prices with stunning quality. With this competition, it can be said that every telecommunications operator already has a marketing strategy and there is a fairly tight competition.

7. Instant noodles

Almost everyone likes these instant noodles, especially for those who are boarding . Instant noodles themselves can be used as a snack when the stomach is hungry or used as a side dish of a dish, such as lunch. In Indonesia, there are quite a number of instant noodle companies, so consumers are often confused about which one to choose. Companies or manufacturers are starting to see this market share starting to increase the advantages of a product in the hope that the product will continue to run.

Conclusion 

Basically, oligopoly is imperfect competition, so it will be difficult for new producers to enter this oligopoly market. However, on the other hand, maintaining a company in an oligopoly market is not easy because it requires careful marketing planning. Therefore, only a few producers are able to survive in the oligopoly market.

Source: From various sources

Author: Restu Nasik Kamaluddin