Economics Perfect Competition Questions Medium
Oligopoly and market concentration are closely related concepts in economics. Oligopoly refers to a market structure where a few large firms dominate the industry and have significant control over the market. Market concentration, on the other hand, measures the extent to which a market is dominated by a few large firms.
In an oligopoly, market concentration tends to be high. This is because a small number of firms hold a large market share and have the ability to influence market prices and output levels. These firms often engage in strategic behavior, such as price-fixing or colluding, to maintain their market power and limit competition. As a result, market concentration increases as the market becomes more oligopolistic.
Furthermore, market concentration in an oligopoly can be measured using various indicators, such as the concentration ratio or the Herfindahl-Hirschman Index (HHI). These measures quantify the market share held by the largest firms in the industry and provide a numerical representation of market concentration. In an oligopolistic market, the concentration ratio and HHI are typically high, indicating a high level of market concentration.
It is important to note that while oligopoly and market concentration are often associated with each other, they are not synonymous. Market concentration can also exist in other market structures, such as monopolies or monopolistic competition, where a single firm or a few firms dominate the market. However, oligopoly is a specific market structure characterized by a small number of large firms, and it often leads to high market concentration.