UGF Lecture 5

Management > Global Firm > Oligopolies

Oligopolies

Oligopolies are defined by a very small number of huge firms which completely dominate a market. It is often referred to as a concentrated market structure.

By the early 1970s there were two established perceptions about MNEs, that they were located in concentrated industries and that OAs were used defensively, rather than aggressively.

Key firms observed each other's movements closely, which called for a more formalised analysis of the relation between oligopoly industry structures and the emergence of overseas production.

The hypothesis is that firms in an industry within a country observe and respond to movements of other large firms. The more concentrated the industry the more closely firms watch each other and quickly match their movements.

For example, a firm would not put its prices up, as it will lose custom to its rivals. Similarly, if a firm lowers its prices, the others will follow suit, resulting in lower profits for everyone.