The presence of oligopolistic firms of huge business giants, multinational corporations and gigantic public sector enterprises is quite a visible feature and the dominant form of market structure in the present – day world. Such oligopolies may emerge or be formed due to many reasons and in many ways, some of which are discussed below:
In many business spheres, the size of investment on plant, machinery, building and other fixed assets is so huge that not many firms can afford to set their firms. Modern steel factories, heavy electrical plants or exploration of oil and oil investment is so large that many firms cannot enter the field. Thus in such sectors we come across huge oligopolistic firms.
Sometimes a few big enterprises that dominate the market make it difficult for the smaller firms to stay in business. This happens when the big firms with large scale production reap the economies of scale (the advantages associated with the expansion in scale of business operation) that constantly reduce their cost of production. This enables them to change lower prices and drive out smaller and less efficient firms.
Oligopolies may also emerge in an otherwise competitive market when many small firms merge with each other to form a bigger firm. Such mergers thus reduce the number of firms and also eliminate the extent of competition. Acquisition means when a big firm purchases and acquires another firm and takes it under its management. Such acquisitions reduce the number of firms operating in the market and lead to emergence of oligopolies.
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