An oligopoly is a market form in which few firms control the majority of market share and typically produce homogeneous products. Because of the small number of firms and lack of competition, this market form often allows for partnership or collusion.
The most important characteristics of oligopoly are:
- An industry dominated by a small number of large firms
- Firms sell either identical or differentiated products
- The industry has significant barriers to entry
Oligopoly- Coke & Pepsi
Coke and Pepsi are in an oligopoly market. They are offering the homogeneous item so they can control over cost yet they will consider their activity when they might want to change the cost of their goods. They are using cut-throat competition to attract more potential customer.
Typically, both of the firms will utilize low-price strategy in the meantime to boost the market profits. Particularly when summer occasions arrive, both of the firms will cut-throat price competition to increase their sales in order to increase their profits. There are high high barriers to enter this market. Coke and Pepsi have signed a cartel contract. The two firms will turn into a cartel to stay away from other firm to enter this market since it will decrease their economic profit. Cartel is few firms acting together to limit cost, raise price and increase profit. Neither coke nor Pepsi exit from this market, another firm will become a monopoly. The soft drink price will become higher.