Question

Explain this Statement: "it is not the number of firms in an industry that makes an oligopoly, but rather the percentage of output of sales accounted for by a few large companies"

Answer 1

Generally we define an oligopoly as a small group of suppliers that control a market. Many times people will try to classify an oligopoly based on the number of firms acting in the market, e.g. a market with less than 10 firms, but that is not correct.

For example, in the soft drink industry there are several competitors, specially local or regional competitors, but if you add Coca Cola's and Pepsi's market share (over 70%), then you could define that market as an oligopoly.

The same applies to car manufacturers. There are several car manufacturers around the world, but the top 10 control 75% of the world's market, so that makes it an oligopoly.

Answer 2

See explanation below.

Step-by-step explanation:

An oligopoly refers to a market structure in which a few firms dominate. This means that, it is a market or industry which is dominated by a small group of large sellers. When a market is shared between a few firms, it is highly concentrated. In this type of market, only a few firms account for a large output of sales.

From the definition above, we can therefore explain the statement presented above by saying, an oligopoly cannot be defined by virtue of the number of firms in an industry alone, but rather by the level of output sales that are achieved by a very few number of large firms or corporations.