Why Most of the Industries Today are Oligopolies Essay

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Why do you think most of the industries today are oligopolies? Q. Why do you think most of the industries today are oligopolies? Oligopoly is a market structure in which there are a few large firms with a concentrated market share, an example of an oligopoly today would be Nike, Reebok and Adidas for shoes. Most industries today are oligopolies, the possible reasons for this would be that oligopolies in contrast to monopolistic competition would be able to earn abnormal profits in the long run as well as the short run, as shown in the previous section The reason for this is that there are barriers to entry and exit to potential firms. Examples of these barriers would be, high capital costs i.e. start up costs for new…show more content…
Existing firms would also enjoy economies of scale like, technical economies in which they would have access to improved technology and would be making much better use of it as they are operating on a larger scale, but new firms will face high costs in employing the new technology, thus they would have to price their products differently. These are just a few of the potential barriers that could exist, and they deter new firms from entering the industry thus existing firms enjoy abnormal profit in the long run. This would prove to be a major incentive for firms to become oligopolistic in nature. This extra abnormal profit that is earned in the industry is used for research and development of new and improved products, this is done either collectively by all the firms in the industry or independently. Either way the prospect of earning further profits via the development of new products acts as an incentive to go ahead and carry out research and development. Oligopolies are technically in between being a monopoly and being in monopolistic competition. We have already discussed the benefit of being an oligopoly over being in monopolistic competition (abnormal profits in the long run). But monopolies too earn abnormal profit in the long run and in fact they earn much more profit since they are the sole
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