General Economic Characteristics of Oligopoly and Particular Characteristics of Airlines

General Economic Characteristics of Oligopoly and Particular Characteristics of Airlines
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General Economic Characteristics of Oligopoly
This is a market structure that is characterized by a small number of large companies dominating the market. These large companies either sale identical products or service or different services. At the same time, they create barriers stopping other competing companies from entering the market. Oligopoly dominates major industries in the world today ranging from cars to computers, aircrafts to pharmaceutical products and many more. There are general characteristics that oligopoly have that makes it distinct from other markets (Hirschey, 2009).
One of the characteristics of oligopoly is that a few companies dominate a specific industry. These firms are generally larger than the market and thus creating a considerable market control. The extent of the market control also depends on the number and size of the market. These large firms at the same time merge with an aim of forming a cartel. In addition, this considerably increases their market share resulting to increased economies of scale which reduces competition (Hirschey, 2009).
Another general characteristic of oligopoly is that the few dominant companies produce identical products while other produce differentiated products. Most oligopoly industries producing identical products tend to produce raw materials used as major inputs by other companies. For example, producers of products such as petroleum and steel are identical oligopoly industries. On the other hand, differentiated products oligopolies are more focused in the production of consumer goods. This is because they dominate the market and want to satisfy the wide range of customer needs. For example, producers of household detergents, airlines, automobiles and communication technology are differentiated product oligopoly. In addition, differentiated products oligopoly put emphasis on nonprice competition like advertisements (Wensveen & Wells, 2007).
The final characteristic of companies in oligopolistic industry is that they achieve and control the market. This is done through barriers to entry into the same market. Most of these companies tend to create barriers to entry into the market through exclusive rights, ownership of resource, government permits and creating a large start up cost. Others include them having a recognized brand name and a declining standard cost (Hirschey, 2009). These barriers make it hard for many potential competitors from entering the same market. Apart from the barriers, most of these oligopolistic firms tend to be interdependent and have relatively firm prices. These firms also involve in collusion to control market prices (Hirsche...