An oligopoly is when a market is shared by only a small number of firms, resulting in a state of limited competition. An oligopoly is similar to a monopoly, but in a monopoly, a single company or group owns all or nearly all of the market for a given type of product or service. There is no upper limit to the number of firms in an oligopoly. However, the number must be low enough that the actions of one firm significantly influence the others. Even though companies within oligopolies are competitors, they tend to cooperate with each other–either directly or indirectly–in order to benefit as a whole. This often leads to higher prices for consumers.

Key Takeaways

  • An oligopoly is when a market is shared by only a small number of firms, resulting in a state of limited competition.
  • Since the 1980s, it has become more common for industries to be dominated by two or three firms as merger agreements between major players have resulted in industry consolidation.
  • Currently, some of the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airlines.
  • For consumers and citizens, the consolidation of private power generally means they will incur higher costs, and historically, consumer efforts have been effective over time at stopping some of the abuses of power that result from industry consolidation.

Industry Consolidation Is on the Rise

Throughout history, there have been oligopolies in many different industries, including steel manufacturing, oil, railroads, tire manufacturing, grocery store chains, and wireless carriers. Currently, some of the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airlines. Since the 1980s, it has become more common for industries to be dominated by two or three firms. Merger agreements between major players have resulted in industry consolidation.

Media Conglomerates Dominate Film and Television

Film and television production in the U.S. is dominated by the film and television production units of five media conglomerates: The Walt Disney Company, WarnerMedia, NBCUniversal, Sony, and Viacom. In 2018 alone, the box office proceeds of Disney exceeded $7 billion. Previously, 21st Century Fox was included in this list of the largest film production companies, but in March 2019, all the media assets of 21st Century Fox were acquired by Disney for $71.3 billion. This acquisition made The Walt Disney Company the largest media company in the world.

Wireless Carriers Represent Highly-Concentrated Industry

The combined market share of the four major wireless carrier companies in the U.S.—Sprint-Nextel, T-Mobile, Verizon, and AT&T—is over 98%. In this highly-concentrated industry, certain practices that are unfriendly to the consumer have become the norm, including termination fees and sneaky overage charges. The majority of consumers are locked in contracts with one of these four companies, and there is very little recourse for this oligopoly behavior.

The Big Three Music Labels

Although there are niche record companies that cater to specific audiences and music styles, the music industry is dominated by three major recording labels: Sony BMG, Universal Music Group, and Warner Music Group. EMI was included in this group until Universal Music Group purchased EMI in 2012.

When Universal Music Group initially expressed interest in purchasing EMI for $1.9 billion in 2012, industry watchdog groups encouraged the government to stop the deal, claiming that the consolidation would result in the newly created music superpower disrupting pricing and raising costs for consumers. Although a congressional hearing was held and the issue was examined by both American and European regulators, the takeover was eventually approved.

Domestic Airlines Oligopoly

The airline industry in the U.S. is also arguably an oligopoly, with four major domestic airlines– American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines– flying about 80% of all domestic passengers in 2017.

Prior to 1978, domestic air travel in the U.S. was managed like a public good by the Civil Aeronautics Board (CAB). They established schedules, fares, and approved new routes. With the introduction of the Airline Deregulation Act in 1978–intended to increase competition in the airline industry–the price of fares dropped, in addition to the number of flights offered. However, after extensive consolidation in the industry and the failure of many smaller airlines, prices of airline flights started to sharply rise and have continued to rise despite the sharp decline in the cost of fuel. In addition, starting in 2008, airlines have begun charging fees for services that were earlier included in the airfare.

Market Structures Exist on a Spectrum

In reality, market structures should be thought of as on a spectrum from pure monopoly to perfect competition. While these industries all exhibit oligopoly behavior, structural shifts could easily upend the existing powers in the coming decades. For consumers and citizens, the consolidation of private power generally means they will incur higher costs, and historically, consumer efforts have been effective over time at stopping some of the abuses of power that result from industry consolidation.