Limitations of Oligopoly

Oligopoly is the term which is used in the context of economics; it refers to that market structure in which there are only few sellers or producers for the good and therefore there is some pricing power available with the sellers. Given below are some of the limitations of oligopoly –

  1. Consumers are at disadvantage in the sense that when few firms join hands and decide to raise price for the good they can do it without any fear of drop in demand since there is no substitute or competition for the products of firms and therefore consumers will have to bear the brunt of rise in price of goods.
  2. In oligopoly few companies become large which results in concentration of power and these companies just because of their sheer size do not allow small companies in the industry to flourish and due to it creativity of small companies go unnoticed as they are just not able to make profits because of big companies having the last word in the industry.
  3. Oligopoly can be regressive in the sense that since few companies join hands and make profits they do not care about improving the product they offer to their customers because innovation take place only when you are desperate and in oligopoly companies are relaxed since they know they will be making profits even if they do not innovate.
  4. It creates unrest and frustration in the minds of general public because oligopoly adds to rich poor divide and people are never happy when few industrialists are making huge profit at the cost of public money.

As one can see from the above that oligopoly market structure can be dangerous one for the economy and that is the reason why this type of market structure is rarely seen and governments do not allow such market structure to flourish by intervening through their policies and regulations.

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