What Are the Advantages and Disadvantages of Oligopoly?

In order to fully understand oligopoly, you need to discover the advantages and disadvantages. Examining both the positive and negative aspects of any concept will help you to obtain a well balanced perspective. In an oligopoly there are only a few sellers of a specific product or service which usually has a big effect on the competition for that product or service.

Big Businesses Gain Massive Profits

One of the greatest advantages that occurs from an oligopoly is for the businesses which are in control. Think about some of the major companies in the United States. You could probably point out five businesses who own the majority of other businesses. Sometimes, even products which appear to come from competing companies are actually results of the same larger establishment. Therefore, the main company is able to drive its own competition, yet it always wins that competition since it has products on both sides.

Additionally, the business is able to make massive amounts of money since that one company is in charge of so many different components.

Ability to Determine Prices

Instead of having to keep up with the market, the oligopolies essentially control the market. Of course, in times of economic hardship, many different types of venues are going to be affected-and these successful businesses can be hurt as well. However, once again, think about the major businesses in the United States and how they have managed to stay open during the current recession.

Since they have so much power, they are able to set prices for both goods that people want and goods that people need, thereby sustaining themselves. However, the practice of "setting" prices is illegal. Therefore, while it is a positive for the company, it is a negative in so many other ways.

Long Term Profits

These companies not only make massive profits, but they are able to retain them for the long haul. The way that the market is set up does not allow just any old business to come into the share of the power of the oligopoly.

Disadvantages of Oligopoly

Power in the Hands of a Wealthy Few

When the wealth is concentrated in the hands of a few people and not more spread out, smaller businesses are not necessarily able to get their names out there and sell their products and services, unless they are absorbed by a larger business which is part of the oligopoly.

Creativity

When the wealth is concentrated, it is difficult for new ideas to come into play. They either need to be absorbed by one of the controlling businesses in the oligopoly, or they are never able to reach fruition.

For the individual, stifling creativity is suffocating. A great idea might be all ready to come into existence, but it is unable to be introduced because of the oligopoly's power in the marketplace.

Setting Prices

These big businesses have the power to set prices which is negative for the society and for other types of businesses, in addition to being illegal. The whole idea of competitive pricing is thrown out the window when these businesses go about their pricing practices.

As you can probably see, oligopolies appear to be beneficial for the successful businesses in them, but not so great for the other people in the society.