Answer to Question #212679 in Economics for Pontsho

Question

How can oligopoly cause market failure

Answer 1

Oligopoly has many negative features of monopolistic competition: underproduction, overpricing, a tendency towards long-term receipt of economic profits (the latter is tantamount to a redistribution of the incomes of the non-oligopolies sector in its favor). Moreover, due to the significant degree of market control, these shortcomings are more pronounced than in monopolistic competition. It is especially dangerous that under certain forms of oligopoly, in particular, in the case of a cartel, the oligopoly practically turns into a group monopoly.