Oligopoly arises from the concentration of ownership. Oligopoly is where a small number of companies own or control the production of a particular good or provision of services within a market economy. Oligopoly interdependence can foster anti-competitive co-ordination. Recognised interdependence is the hallmark of oligopoly.
Competition laws prohibit collusion that raises prices, restricts output or divides markets. But the laws do not prohibit conscious parallelism. Thus firms in an oligopoly might imitate their rivals pricing and other competitive behavior in a process that harms consumer welfare, yet without reaching an explicit agreement. - The OECD Competition Committee debated oligopolies in 1999.
If no substantial competition is evident even in the oligopoly, it is also less likely that it will exist in the relationship to the oligopoly outsiders. Oligopoly is marke by restrictions such as limited resources concentrated only in the hands of the members of the oligopoly, a large degree of vertical integration of the members of the oligopoly, exclusive dealing contracts of the oligopoly members with their respective customers. Not the case if certain barriers to market entry exist, like patent law. In oligopoly settings, parallel price movements for example could arise simply through independent rational behavior.
Standard economic analysis identifies a number of factors which are generally considered relevant for ascertaining the existence of an oligopoly. An oligopoly can thus be proved on the basis of the analysis of the features of the market, even in the absence of structural links between the members of the alleged oligopoly.
The greater the likelihood of conscious parallelism appears, the more evidence is needed to refute the presumption of a dominant oligopoly. If an examination of the conditions of competition it appears that there is no indication of a dominant oligopoly, the competitive process need not be examined further. It must be examined whether, and to what extent, the members of the oligopoly actually make use of possible parameters of competition.
Oligopoly theory does indeed have a useful role to play in the investigation of mergers. Oligopoly theory can be
useful at identifying the factors which need to be considered in the assessment of a
merger. The only oligopoly where competition did not appear to be effective post-merger
was one where no buyer power was present.