Q:

What are disadvantages of oligopoly?

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Quick Answer

The greatest disadvantage of an oligopoly is that it can reduce the number of choices for the consumer. This lack of choice can result in consumers being forced to use products or services they do not find satisfactory.

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Full Answer

Oligopolies allow businesses to engage in cartel-like behaviors, which means they can collude together to reduce competition. This may result in companies fixing their prices to maximize profits, which can force consumers to pay more than they should. Companies in an oligopolistic market can work together and create barriers of entry that can make it almost impossible for another business to enter the market and establish itself.

Companies that are a part of an oligopolistic market do not devote their time to improving their products or services because they already have a dominant market share. This lack of innovation is harmful to both consumers and businesses because it halts any possibility of social or economic progress.

Oligopolies are also inefficient in regards to maximizing productivity. This is because companies that are a part of oligopolies tend to focus more on fixing their prices at a point that is beneficial to every company in the oligopoly instead of maximizing their own profit margins.

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