Question

Which helps enable and oligopoly to form within a market

Answer 1

An oligopoly is a condition wherein a market or industry is dominated by a small number of large sellers (oligopolists). Oligopolies can result from various forms of collusion which decreases competition and lead to higher prices for consumers.

There are certain reasons which have led to the emergence of oligopoly. These are:

1. Investment of CAPITAL:

The number of firms in an industry may be small due to the large requirements of capital.

2. Control of Resources:

A few firms may control some indispensable resources which may result in securing several advantages in costs over others. This helps them to operate profitably at a price at which others cannot survive.

3. Restriction and Patents:

In public utility sector a new entrant is closely regulated through the grant of certificate by the state. This policy of exclusion of rivals may be due to diseconomies of small scale or of duplication of services. Another reason for the emergence of oligopoly is the patent right which a few firms acquire in matter of some goods.

4. Economies of Scale:

Another factor responsible for oligopoly is the large scale firm. In some industries, a few firms can cater to the demands of the product. It is possible that it may be satisfied by a large number of firms, as small firms cannot secure the economies of large scale production. In those industries where there is a lot of mechanization and where economies of large scale are considerable a few firms will survive.

The firms attain such a huge size that a few of them can satisfy the entire demand. For example, automobiles, steel industry, petroleum etc. Oligopolies are also found in local markets. In small towns, a few firms may be sufficient to satisfy the demand, e.g., petrol, banks, building material suppliers etc. The market is small and therefore can be satisfied by a few firms.

5. Entrepreneurs:

In some industries there are superior entrepreneurs whose costs are lower than inferior rivals. These entrepreneurs under sell and eliminate most of their rivals.

6. Mergers:

Many oligopolies have been formed by combining two or more independent firms. This combination is known a merger. The main idea of mergers include increasing market powers, more resources, economies of scale and market extensions etc

Answer 2

Costs of starting a ‘competing business’ are too high helps enable ‘oligopoly’ to form within a ‘market’.

Explanation:

• The reason for the oligopoly to form within the markets is when there are few numbers of firms in the markets due to the need for a large amount of capital.

• The few firms control certain important resources which helps them to secure many advantages in terms of costs over the other firms.  

• The economies of scale are another important factor and reason for oligopoly in the market.  

• When the demand for goods is satisfied by many firms and the smaller firms are unable to produce a large number of goods.

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