In the world of economics, oligopoly implies a scenario where the market is dominated by a few or handful of suppliers, and there are a large number of buyers present. This is quite commonly observed in many economies, and is a significant contributory to economic growth and development in many nations. This market system is often commented to be the most realistic economic model.
An oligopoly is better understood if a person analyzes its properties. The characteristics are quite similar to that of a monopoly; the only difference being that the market is controlled by a few producers. The infinite or rather large number of buyers often puts these producers in quite an advantageous situation, due to the fact that buyers have less alternatives to choose from. Monopoly and oligopoly market structures give producers an advantage of assured revenue. This assured revenue basically arises due to the lack of alternative goods or services. This situation is quite advantageous to producers, as it gives them a great opportunity to inflate the prices of their goods. In some cases, this may also work in a reverse manner, as in an attempt to attract more consumers, the producers will reduce the prices, eventually leading to a deflated general price level.
The assumption that every element (producers and buyers) has perfect knowledge of the entire market does not hold true in case of oligopoly. It is true that the producers have perfect knowledge of consumers, but the reverse is not true, i.e., consumers do not have knowledge of producers and price fixation. Such a situation gives rise to odd and negative effects of oligopoly on the national economy.
The prominent effect is that it is an established form of market system with oligopolistic producers preventing the entry of new producers into the market. There are cases where producers will unite against potential new entries in the market by controlling price fixation, and thereby creating an acute loss of revenue for the new producers. In some oligopoly markets, producers also tend to share markets which often leads to inflation of general price level. This might seem great for a seller, but for a consumer, this situation is quite a nightmare. The phenomenon of assured market and sales stagnates research and development, which eventually leads to producers churning out sub-standard goods.
Due to some genuine advantages, economies of nations need oligopolies within them. Oligopolies are genuine contributors to national income and exports. Even though an oligopoly means inflating price levels, there are situations where governments have sought to control producers as they provide people with important necessities. Irrespective of the characteristics of an oligopoly market that have been mentioned above, another concurrent situation sometimes also exists, where instead of sharing markets, oligopolistic producers strive for dominance, which leads to decreased general price levels, greater economic development, and an optimized quality of production.
Oligopoly markets are bound to exist in all national economies, and it is the duty of producers to optimize their outputs, instead of just enjoying assured profits. Whatever the economic model, what matters is the temperament of the producers to strive for excellence and greater performance, because it bears good fruit in the form of hefty profits for them and better products for the consumers.