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My favorite example of Oligoplists in Latvia is about telecommunication providers. Now a mobile telephone operator demand in Latvia is really great, but not so great to let a forth company of this kind to enter the market of this country. A few years ago the president of “Baltcom GSM”, Pēteris Šmidre, said that a third operator’s existence in Latvia is unnecessary and unreal. He said that three companies from the same niche can work and exist only in a country which is very developed or in a country which is really corrupt. Despite of what he said Latvia now has three mobile operators – “Latvijas Mobilais Telefons”, “Tele2” and “Bite”.4 In my opinion they don’t need to worry about one more competitor in the market. They only need to know the pros and cons of their existing competitors. Last year I heard that someone wanted to merge “Latvijas Mobilais Telefons” and ’’Lattelecom’’ for a better profit.5 Somehow this idea has been silent for a time now.
In oligopoly, there is always tension between co-operation and self-interest. The group of oligopoly is better off cooperating and acting like the monopoly. However, because the oligopolists care about their own personal profit, there is an incentive for them to act on their own. This will therefore limit the ability of the group to act as a monopoly.
To conclude, oligopoly is a unique market structure because of the interdependence of the companies and the competitive prices. Kinked demand curve is an explanation why the prices do not go up or down extremely and why companies must find other ways to compete, like branding. Companies will accommodate their prices while observing their competitors or just coordinate their behavior explicitly. Still, companies are not suited to work together and cooperation might not last. As a Japanese proverb goes: ’’none of us is as smart as all of us’’. Though eventually there are some companies that are.
- Investing in Private Equity - Advantages and Drawbacks
- Oligopoly. Economics
- Theory of Corruption
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