The concentration of sellers refers to the number of sellers in a sector associated with their compared market share in the sector`s sales. When the number of sellers is large enough and each seller`s market share is so small that it cannot, in practice, significantly affect a competitor`s market share or income by changing its selling price or production, economists speak of atomic competition. A more frequent situation is that of Oligopol, where the number of sellers is so small that the market share of each is large enough for the seller to change, even a modest change in price or production, to have a significant impact on the market shares or revenues of competing sellers and encourage them to react to the change. More broadly, the oligopoly exists in each sector where, at least, some sellers hold large market shares, although there may be an additional number of small sellers. When a single seller supplies all of a sector`s production and can determine its selling price and production without worrying about the reactions of competing sellers, there is a monopoly for a company. The typical business of our economy is the imperfectly competitive company. There are two types of imperfectly competitive markets. An oligopoly is a market with few sellers who each offer a product similar or identical to the others. Monopolistic competition describes a market structure in which there are many companies that sell similar but not identical products. (CD, books, games) In a competitive monopoly market, each company has a monopoly on the product it manufactures, but many other companies manufacture similar products that compete for the same customers.
As we have seen, cooperation between denopolists is undesirable from the point of view of society as a whole, as it leads to too low production and high prices. In order to bring resource allocation closer to the social optimum, policy makers should strive to encourage companies in an oligopoly to compete rather than cooperate. In the language of game theory, a strategy is called oligopoly, a market structure in which there are a few companies that make a product. If there are few companies on the market, they can come together to set a price or level of production for the market to maximize the benefits of the industry. As a result, the price will be higher than the market fair price and production is expected to be lower. In extreme cases, companies that collide can act as a monopoly and reduce their individual production, so that their collective production corresponds to that of a monopoly and allows them to make higher profits. The sectors are different in terms of the ease with which new sellers can enter. Barriers to entry weigh on the advantages that sellers already have in a sector over the potential operator. Such a barrier is generally measurable by the extent to which established sellers can sustainably collect their selling prices above the minimum average cost without attracting new sellers. Barriers may exist because the costs to historical sellers are lower than those of new entrants, or because historical sellers may require buyers who prefer their products to those of potential operators. The profitability of the industry may also be such that new entrants should be able to take a significant market share before they can work profitably. The arguments in favour of monopolies are largely about efficiency gains in production.
For example, proponents argue that large integrated operations will improve efficiency and reduce production costs; that monopolies, by avoiding wasted competition, can streamline operations and eliminate overcapacity; and that monopolies, with a degree of security for the future, allow for sound long-term planning and rational investment and development decisions.