oligopoly

In economics, a situation in which a few companies control the major part of a particular market. In an oligopolistic market, firms may join together in a cartel, colluding to fix high prices. Such collusion – an example of a restrictive trade practice – is illegal in the European Union (EU).

Oligopoly is characterized by competition on features other than price. Price wars, where all the large companies in the market cut prices, tend simply to lead to lower profits, leaving market shares little changed. Instead, oligopolistic firms tend to charge relatively high or ‘premium’ prices but compete through advertising and other promotional means. Existing companies are safe from new companies entering the market because barriers to entry to the market are high. For example, if products are heavily promoted and producers have a number of existing successful brands, it will be very costly and difficult for a new firm to establish its own new brand in the market.