In today economic, competition is the foundation of a free market.

There are 3 main types of market: Perfect competition market, monopolistic market and oligopolistic market. Today, I am here to introduce you the oligopolistic market. The concept of oligopoly is: there are a few sellers but a lot of consumers. Oligopoly is a common market structure in which a few large firms dominate most of the market. The market can be dominated by two to twenty firms. In an oligopoly market, a few large firms supply a large portion of the total products that is sold in the market; therefore, these few firms gain the majority of the total sales revenue. For example, in the computer industries, Microsoft and Apple are the main two companies that dominate the market, due to there is a lack of alternatives for consumers, Microsoft and Apple can increase their products prices to maximize their profits. Oligopoly is relatively common market structure because the dominant firms have a large amount of buyers with low competitors. There are high barriers to prevent new firms entering the market. The main reason why new firms will find it difficult to enter the market is because there is a high set up cost and the existent firms are in consumers favor. New firms need to strongly advertise themselves in order to gain consumers trust. Also, the existent firms will use strategic actions to destroy and prevent new firms. For instant, the existent firms will reduce product prices in order to make the new firms lose revenue and exit the market. And some large firms will buy off potential new firms to prevent they take over to the market and reinforce their positions in the market, for example, Yahoo! ( the second largest search engine) bought out the website ask jeeves. Another difficulty for new firms to enter the market is when existing firms are in the favor of government regulations, such as gas industries. Oligopoly characteristic ensures existing large firms market controls and firms are able to make profits in a long run. A firm with a special product in common consumer market is most likely to succeed in entering an oligopolistic market. Industrial technology is the most common oligopolistic markets. For example: ipad. Ipad is a thin high technology device marketed by Apple. When it fast came out, it dominated the market due to there was no other companies have such an advance technology to develop devices similar to Ipad.

An oligopoly can be defined as either a homogenous oligopoly or a differentiated oligopoly. In a homogeneous oligopoly, the product or service is most likely identical. For example: fuel, electricity, raw materials, paper The product price and quality tend to suppress competition. For example: In 2010, when the fuel price went up, Matilda petrol stations dropped down 20 cents per liter cheaper than other petrol stations and attracted plenty of customers. In a differentiated oligopoly, there are two types of product differentiations: moderate and total. For the moderate differentiation, every product in the same market is similar but not identical, example like beer industries, airline industries, and phone industries; as the products are not identical, it encourages competition in non-price-related areas. Firms will advertise the product differentiations in order to attract consumers. For example like beer industries. Different beer has a slightly different smells, tastes and flavors. Therefore, beer manufacture advertises their product differentiations such as different flavors, tastes and smells. For example, XXXX beer has more bitter taste and Heineken has a plain beer taste. Consumer will make their decisions base on their favors. Also, different packaging and advertising product can attract more buyers. For the total differentiation, products in the same market are different to others. For example like cars. Different car manufactures attempt to differentiate their cars in order to attract more consumers, consumers make their decisions base on the appearing, function and efficiency of the cars. For example, Jaguar produces elegant and powerful cars. Toyta produces cheap and quality cars. Volvo produces safe and luxury cars. Different manufactures provide differentiated products, and firms are able to maintain price differences.

Due to an oligopoly consists of a few firms; the action of any one firm may have an impact to other firms in the same market. Oligopolistic firms are usually very much aware of each others actions. In some cases, they focus on the advertising of their products in hopes of beating competition. These advertising wars lead to feuds between companies for instant: Coles and Woolworths. Supermarket in Australia is an oligopoly which Coles and Woolworths are the two most dominant supermarkets. In July this year, Coles had launched an aggressive advertisement against Woolworths in order to gain the share market back. Coles had spent more than one million dollars per week on advertising and spent over three millions dollars to sponsor Masterchef in the past few months. Woolworths in order increased its spending on advertising over six hundred thousands per week. According to the data from Nielson Company, both Coles and Woolworths are spending 20 per cent more on advertising than last year which fuel the advertisement industry. Coles also began its price cutting campaign in early June and Woolworths followed Coles and cut down prices on over 4000 items which is benefiting the customers. However, as Coles and Woolworths dropped the price of milk to a dollar per liter, weeks after 170 people lost their jobs at the Kimberly Clark tissue mill. The Coles and Woolworths price war is destroying the value of every product, reducing competition and negatively impacting returns to Australian. The price war puts a lot of pressures on other supermarkets such as ALDI and IGA and other industries and suppliers and eventually it will wipe out all the other smaller businesses in the market which means lots people will lose their jobs and eventually led to global financial crisis. Also, it will leave consumers will less choice. In conclusion, oligopoly competition can fuel the advertising industries. Competition among the top firms can benefit the consumers. However, it will also impact and afflict on all the other small businesses.

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