Oligopoly Market Explanation
In trade, the term oligopoly is heard quite often. Oligopoly or what is commonly called oligopoly market is something that business people who are just starting their business need to know. An oligopoly is a market with imperfect competition.
The reason why oligopoly is called an imperfectly competitive market is that in that market area, the number of producers is not proportional to the number of consumers. So that to survive, business people must continuously market their products to attract the attention of buyers.
Oligopoly is also commonly used to restrain other companies that have the potential to enter the market. So that only a few producers can produce the same product. Consumers or buyers also buy products that are available only from producers.
An example is cigarette products. In India, the number of active smokers is very high. Meanwhile, there are not many companies that produce cigarettes. This can be called an oligopoly market because the number of producers and consumers is not equal. To prevent consumers from switching to vapor or other products, new variants of cigarettes are continually issued so that buyers continue to buy cigarettes.
Oligopoly has very tough competition. If there are new companies that want to enter this market area, then a sound strategy is needed because oligopoly is often used to prevent new producers from entering the market. Producers set limited prices so that there is very little price competition among producers.
The oligopoly market has a goal so that consumers can freely choose the products they want. This is what will make producers aware of improving product quality as well as meeting the needs of their consumers. Of course, this producer is a challenge in itself.
Manufacturers must continuously research the market and make new products that are better than before so that consumers can continue to use these products. Even though it looks difficult, becoming a producer in an oligopoly can provide more benefits, especially if the marketing strategy is done right.
Oligopoly Market Characteristics
To find out what an oligopoly market looks like in more detail, the following are its characteristics:
1. Has 2 or more producers
An oligopoly is run by 2 or more consumers. At least less than 10 producers. With the lack of producers, therefore it is called an imperfectly competitive market. While the number of consumers is very large and varied.
2. Products Sold Homogeneously
In an oligopoly, the products sold are homogeneous or uniform. Apart from that, they also replace one another. An example is cigarette products. Cigarettes have many variations, so if one product doesn’t sell, it can be replaced with other variations.
3. Main Producer Policies as Reference
The oligopoly market makes the policies of the main producers a reference for other producers. So other producers only need to follow the policies of the main producer. For example, for the withdrawal of old products, changes in function, and also the terms of product pricing.
4. The Price of Goods is Almost The Same
In an oligarchic market, goods sold have almost the same price. The price difference between each product is so slight that the price difference is almost felt for consumers. The price difference is not too large due to the small number of producers.
This product pricing policy is set by the major producers. With the major producers setting prices, other producers adjust as well. Moreover, the small number of producers makes the competition tougher so that the price difference is not too far away.
5. New Manufacturers Hard to Enter
For new producers, it will be very difficult to enter the oligopoly market. The main producers have played product prices so that producers who have just entered will find it very difficult to compete with the prices of existing producers. If forced, the new producers will benefit very little.
6. Marketing Strategy Must Be Mature
In an oligopoly, the marketing strategy must be mature. With the small number of producers and not too many varieties of products, the competition will be tighter. Promotion and marketing must be done intensively because there are concerns that consumers will switch to other products.
Types of Oligopoly Markets
The types of oligopoly markets that can be understood are:
1. Pure (Homogeneous) Oligopoly Market
The first type of oligopoly is a homogeneous market. Inhomogeneous oligopoly, the goods marketed have only one kind but have many choices or many variants. The price difference between one product and another is not too far away.
Pure oligopoly has a tendency to be based on the main producer. Decisions and policies taken by major producers, other producers follow, for example, such as changes in prices, other producers also follow the prices set by the main producers.
2. Differentiated Oligopoly Market
Differentiated oligopoly means a type of market that sells only one kind of goods, but the price does not need to adjust to the prices of other producers. So the price difference is quite pronounced among these differentiated oligopolies.
An example is electronic products such as smartphones. There are not too many smartphone manufacturers, but there are a lot of consumers. Even though the products sold are only smartphones, the price is quite different from one manufacturer to another.
3. Non-Collusion Oligopoly Market
The next type is the non-collusive oligopoly type. The purpose of a non-collusive oligopoly is if there is a producer who wants to pay the price, then he needs to see the development of other producers as business competitors. The goal is to keep growing and other producers unable to follow in its footsteps.
4. Collusion Oligopoly Market
Unlike the previous one, collusion oligopoly is a market where producers cooperate when they are going to raise product prices or keep the price stagnant.
Weaknesses of the Oligopoly Market
The oligopoly market also has weaknesses for the producers themselves. The following are the drawbacks:
1. New Manufacturers Hard to Enter
This is clearly going to happen. Existing producers compete with price, making it difficult for new producers to enter. New producers will find it difficult to compete with existing producers. Moreover, the competition between producers is also very tight.
2. Major Producers Influence Market Strongly
In an oligopoly, the main producers greatly influence market conditions. Other producers must comply with the policies or decisions of the main producers. For example, when the main producer increases the price or decreases the price, other producers also adjust.
3. Marketing Strategy Must Be Good
With intense competition among producers, product innovation must always be made. Besides, the marketing strategy must also be carefully thought out so that consumers know the products being made and are still interested in the products of the producers.
The oligopoly market has quite a few examples. For business owners, it is very important to know market conditions before jumping directly into them. For accurate business management, you can use online accounting software