Oligopoly refers to a market situation in which the number of sellers is few, but greater than one. Augustin Cournot a French economist noticed that only two firms were producing mineral water for sale. An oligopoly is not necessarily made up of large firms. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war.
Journal of Evolutionary Economics 1: — Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant.
Google Scholar Mohnen, P. High barriers of entry prevent sideline firms from entering market to capture excess profits.
As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines.
This is not beneficial for customers and society as a whole. Google Scholar Malliaris, A. Google Scholar Gort, M. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.