A new definition of oligopoly?

By Rick Jelliffe
August 11, 2009

We are all familiar with the simplistic view of market players as being a simple spectrum with monopoly at one end and atomistic at the other: the economist's notional perfect market is between atomistic buyers and sellers, among other concerns.

But there are other categories of market players: in particular there are oligopoly players: factoring in those, we get a triangle rather than a line, representing different kinds of positions a market player can find itself in. It is frequently in the interests of oligopoly players to minimize awareness of oligopoly, just as it is in the interests of near monopolies (market dominators) to give the impression to regulators of merely being part of a oligopoly.

I wonder whether the recent events would make new definitions for monopoly and oligopoly more relevant?

Lets say that a monopoly player is one that is too big for the government to allow to fail. This knowledge will make the company act in a certain reckless way: the jargon is moral hazard.

We can then say that an oligopoly player is one which is too big for the government to allow a second one to fail. They only need be concerned that they are not the most reckless in their industry, since they will expect the worst to fall first.

In the US, Boeing would probably be a monopoly under those terms. GM was part of an oligopoly. The large financial institutions in the US thought they were monopoly class, but ultimately were oligopolies. And the reason why the first one may be allowed to fail might be simply that it is impossible to stop a run on one institution that comes out of the blue: there is nothing to stop the first one failing, while there is a chance for intervention immediately after.

In fact, it might be that the worst oligopoly company may be too big to allow to continue to fail, in the medium term.


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