Types of Oligopoly
There are four primary categories of oligopoly, organized by the degree of differentiation and competition among firms.
Main Categories
- Pure Oligopoly — a market structure characterized by a small number of firms producing homogeneous products, with firms competing solely on price, as seen in the US petroleum refining industry where ExxonMobil and Chevron operate.
- Differentiated Oligopoly — a market structure in which a small number of firms produce differentiated products, competing on factors such as quality, advertising, and brand reputation, as exemplified by the smartphone market where Apple and Samsung compete.
- Monopolistic Oligopoly — a market structure with a dominant firm and several smaller firms, where the dominant firm has significant market power and the smaller firms have limited influence, as observed in the commercial aircraft market where Boeing holds ~60% market share (Boeing annual report).
- Cartel Oligopoly — a market structure in which a small number of firms collude to restrict output, set prices, and maximize joint profits, as illustrated by the Organization of the Petroleum Exporting Countries (OPEC) which coordinates oil production among its member countries.
Comparison Table
| Category | Degree of Differentiation | Barrier to Entry | Market Power |
|---|---|---|---|
| Pure Oligopoly | Low | High | Moderate |
| Differentiated Oligopoly | High | Moderate | High |
| Monopolistic Oligopoly | Moderate | Very High | Very High |
| Cartel Oligopoly | Low | Very High | Very High |
How They Relate
The categories of oligopoly are not mutually exclusive, and firms may exhibit characteristics of multiple categories. For instance, a firm may operate in a Differentiated Oligopoly market but also engage in Cartel Oligopoly behavior by colluding with its competitors. The Monopolistic Oligopoly category often overlaps with Differentiated Oligopoly, as the dominant firm may use its market power to differentiate its products and maintain its market position. Furthermore, Pure Oligopoly and Cartel Oligopoly can be related, as firms in a Pure Oligopoly market may attempt to form a cartel to reduce competition and increase their joint profits. Specific pairs of categories, such as Monopolistic Oligopoly and Differentiated Oligopoly, are commonly confused due to the similarities in their market structures, but they can be distinguished by the level of market power and product differentiation.