Oligopoly

Abstract

No article entitled ‘oligopoly’ appeared in any edition of Palgrave’s Dictionary of Political Economy. It is true that the simplest case of oligopoly, that is, duopoly, was considered more than a century and a half ago, by Cournot; but such an analysis was motivated by purely theoretical interests. The fact is that only in the 20th century and especially after the Second World War did this market form become important in economic reality, as a result of two processes of economic change: the process of concentration and the process of differentiation. In those branches where the former process has asserted itself – for example, steel, basic chemical products, cement, electricity – concentrated oligopoly with relatively homogeneous products has emerged; where the latter process has prevailed, we find differentiated oligopoly; in those branches where both processes have taken place simultaneously, then mixed oligopoly has emerged. In both processes innovations have played a major role, with the proviso that in the process of concentration innovations have given rise to economies of scale, whereas in the process of differentiation the most important role has been that of technological innovations implying economies of specialization; in this case, technological innovations are combined with commercial innovations. In fact, differentiated oligopoly can be found mainly in those activities in which quality competition, commercial services and advertising have had a particularly relevant role – non-durable consumer goods, such as textiles, tyres, canned foods, soft drinks and cigarettes are often produced in conditions of differentiated oligopoly.