The Structure Behind the Business Ladder
What is the brand of your current cellphone? From what telecommunication company are you subscribing? The most probable answers for a cellphone brand would be Nokia, Apple, and Samsung. And surely, one is subscribing from Globe, Smart, or Sun Cellular. Why are the answers so predictable? Why are these companies very well-known? This is because they are the powerful ones in the market today. In different industries, there are dominating firms controlling a specific sector. For example, we have ABS-CBN, GMA, and TV5 for television; Shell, Caltex, and Petron for the petroleum industry; Jollibee, KFC, and McDonald’s for fast food chains, and SM and Ayala Malls for commercial and property development. The list goes on. That is what oligopoly is.
As how Othman Frederick describes it, oligopoly is like a cheese merchant who deals out the cheese from his big warehouse with the price he wants. Add around three merchants grouped together, and that makes an oligopoly (Frederick 4). In a formal sense, what makes an industry an oligopoly is when there are around two to twenty firms dominating. It is judged based on the relationship of a firm’s market power and performance. As the number of sellers or producers decrease, their dominance increases, and the market moves farther from a perfect competition. The higher the power, the higher is the barrier to entry. This is a feature of both monopoly and oligopoly types of market structure (McAuliffe 177). If another term for monopoly is “no competition”, then oligopoly is also known as “imperfect competition” (University of North Carolina). But even if oligopoly encourages innovation and development in business, it is not beneficial to the common good, since it widens the gap between the rich and the poor.
Figure 1 Market Structure Diagram
Monopoly and oligopoly are similar in a way that the dominating firms are very visible. The barrier blocking new entrepreneurs to...