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What are the advantages and disadvantages of oligopolies?

A:

Quick Answer

Oligopolies are usually seen as being negative to the general public. There are certainly disadvantages of oligopolies, including reduced consumer choice. However, the disadvantages are also matched with some advantages, including price stabilization.

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Full Answer

An oligopoly occurs when an industry, such as the automobile industry, has few competitors.

Most of an oligopoly's disadvantages are matched with an equal advantage. Many times, there are so few competitors because companies in the industry make it next to impossible for new companies to break through.

Because consumers have so few choices in an oligopoly, the companies generally have no incentive to keep prices low, so consumers usually spend more for the goods or services. However, this lack of competition can work to stabilize prices so that they don't fluctuate and surprise consumers, allowing them to plan ahead for large purchases.

Businesses involved in an oligopoly may not have great incentive to be efficient in their production of goods and services, which can lead to consumer frustration. Because of the greater amount of time companies have to work on production, though, they are more able to be innovative in their approach to production. This paves the way to new inventions and more stable goods and services.

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