Institution Definition

A market structure with few sellers, who realise their interdependence in taking strategic decisions, for instance, on price, output and quality. In an oligopoly, each firm is aware that its market behaviour will distinctly affect the other sellers and their market behaviour. As a result, each firm will take the possible reactions from the other players expressly into account. In competition cases, the term is often also used for situations where a few big sellers jointly dominate the competitive structure and a fringe of smaller sellers adapt to their behaviour. The big sellers are then referred to as the oligopolists. In certain circumstances this situation may be considered as one of collective (also joint or oligopolistic) dominance. © European Commission

A situation where there is a single (or few) buyer(s) and seller(s) of a given product in a market. The level of concentration in the sale of purchase of the product results in a mutual inter-dependence between the seller(s) and buyer(s). Under certain circumstances the buyer(s) can exercise countervailing power to constrain the market power of a single or few large sellers in the market and result in greater output and lower prices than would prevail under monopoly or oligopoly. This would particularly be the case when: the "upstream" supply of the product is elastic, i.e. fairly responsive to price changes and not subject to production bottlenecks; the buyers can substantially influence downwards the prices of monopolistic sellers because of the size of their purchases; and the buyers themselves are faced with price competition in the "downstream" markets (see vertical integration for discussion of terms upstream-downstream). Such a situation is particularly likely in the case of purchase of an intermediate product. However, if the supply of the product upstream is restricted and there is no effective competition downstream, the bilateral monopoly/oligopoly may result in joint profit maximization between sellers-buyers to the detriment of consumers. © OECD

See also Dominance (notion), Abuse of a dominant position and Abuse of economic dependence

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