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The value of the four-firm concentration ratio that many economists consider indicative of the existence of an oligopoly in a particular industry is anything greater than 40 percent.
How Do Oligopolies Work?
A market structure known as an oligopoly has a small number of enterprises, none of which can prevent the others from having a large impact. The market share of the major companies is calculated using the concentration ratio.
A market with a monopoly has just one producer, a duopoly has two businesses, and an oligopoly has three or more businesses. The maximum number of firms in an oligopoly is unknown, but it must be low enough such that each firm's activities have a major impact on the others.
What Are a Few of an Oligopoly's Negative Effects?
An oligopoly occurs when a small number of businesses dominate a specific market. These businesses may control prices collectively by collusion, resulting in uncompetitive prices on the market. A market with an oligopoly restricts new competitors and discourages innovation, among other things. There are oligopolies in the oil sector, railroads, cellular carriers, and big tech.
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