Oligopoly

And finance Allah shmoop What are Olongapo Lease and Ola

GOPs unease All right people you've heard of monopolies you

know like this guy It's where there's on ly one

option for a particular service Like only one place Tio

by it for example The waterworks Yeah the electric company

maybe certain railroads You know if you don't live near

a train huh Yeah You know we're looking at you

Okay So those air monopolies What's in Olongapo Lee Well

let's take a brief detour to ancient Greece We'LL hit

New play by Sophocles is burning up the box office

Nude wrestling is popular and there's a couple of words

will want to be familiar with We've got mono which

means one or alone as in monotone Ah monolithic and

monogamous We've also got old leg which comes from the

Greek Oly ghost It means few monopoly means one place

You can buy stuff like the electric company waterworks in

the Microsoft operating system in the nineteen eighty nine So

Oleg op Aly means there's a few places you can

buy that thing It's better than a monopoly for the

buyer in terms of competition but it's not a fully

competitive market either Like you live in a small town

way out in the desert There's nothing else around for

at least a hundred miles There's one gas station in

town in that gas station Well basically has a monopoly

on all the local business Basically whatever that gas station

wants to charge for gas well you'LL have to pay

it You don't have anywhere else to go After a

while someone else opens up a second gas station Now

there's two places in town and now you've got the

beginnings of an Oleg op Aly The gas station's compete

on Price It's still not perfect competition Both stations have

good pricing power because well they control so much of

the market But they keep each other in Check their

sort of duopoly if you will A lot of cities

have oligopolies in grocery stores A few brands will have

locations in an area but competition's pretty thin on a

national scale True oligopolies or hard come by and still

some industries have virtual oligopolies like cell phone service for

example right we have Verizon and tea and just a

handful of other smaller providers exist But generally speaking people

are forced to choose among the big players Right Eighteen

Bryce and Sprint maybe T Mobile You know guys like

that computer operating systems or another biggie you could load

up on one of those crowd sourced operating systems that

you're weird basement dwelling cousin prefers But in practice you're

almost certainly going to use Microsoft and or Apple and

that's about it Often end up with an oligopoly There

needs to be significant barriers to entry in a market

Well these barriers of entry can take the form of

high fixed costs to get into it like cost a

billion dollars Teo make an oil rig or a billion

dollars Teo make a billion lines of code and operating

system or something like that Or you have to get

a government license like for a broadcaster to do it

or to build a bridge that takes tolls If that

can be private or maybe make a parking lot or

something you have to get the town's approval Your favorite

pet ferret Mr Pillows Bright then dies You loved him

You don't want a new fair If you want another

Mr Pillows bright so you decide to clone him well

There are three pet cloning companies to choose from Copy

Rover Ink Me Al Again Corp and Trans Jean rendering

Reina plaques limited You go with trans gene because well

they have the most scientific sounding name Unfortunately Mr Pillows

Bright the second comes back with no teeth and purple

for when you complain while the guy it trans gene

says Well you should see some of the monsters they

make over a copy Rover and yell again Consider yourself

lucky dude And obviously you're not happy with the results

but you don't have a lot of choice You're stuck

with the old leg op early so you decide you

want to break up the Oleg Awfully by starting a

new competitor A fourth player in the market problem one

that cost you Khun barely afford the special ferret food

for Mr Pillows Bright the second to gum at with

his you know toothless chewing A new cloning machine cost

millions of dollars high barrier to entry not unlike the

cell phone companies with both expensive cell towers they put

up and government approval they need or the operating systems

that makers have you know their products preloaded onto millions

of computers And yeah that doesn't work either So problem

number two starting your own pet cloning business Well government

regulation Minor detail Congress recently passed the Freedom and Truth

in Animal Cloning and Patriotic Apple Pie Act along with

raising taxes on apple pie and approving funds for a

new long reign stealth bomber The law requires all animal

cloning facilities to obtain a license from the FDA Well

copy Rover Miao again in Trans Jean All have licenses

already You don't Their lobbyists are now swarming around Washington

whispering all kinds of negative things about you to make

sure nobody else gets a license Yeah that's another barrier

to entry So those air all Oleg Op Elise now

onto holy gaap Sinese You've still got that bit of

Greek swimming around in your brain right You'll guess this

term represents another situation where a few companies are involved

while you're right there But in this case they aren't

selling They're buying And ola gops Any refers to a

situation where there are only a few buyers for a

product Like for those nude pictures you have of Warren

Buffett wrestling Bill Gates All right well in the real

world The classic example comes from the defense industry and

the aerospace industries Right If you build stealth bombers or

solid rocket boosters you really don't have a whole lot

of choices in who to sell to This guy might

be rich but he's not rich enough to buy a

stealth bomber and this guy might be really rich But

he's not rich enough for a rocket ship and all

right well maybe this guy is But generally the market

is very small for buyers of that kind of stuff

So you're basically selling to a couple of the Richard

governments in the world and the mostly really just the

US depending on whatever laws are in place that further

limit your options and selling your wares All right so

quick Review Olonga please Or a few companies that dominate

a market unlike a monopoly where just one he's usually

come up because of high costs of entry and or

some big skill and or some kind of government licensing

that's applied to make it hard for any competition to

come in The market works better than a monopoly for

the buyers but doesn't have the characteristics of a truly

competitive market like if there were eighty sellers and they

all competed vigorously for price Meanwhile Enola GAAP Sini involves

a market where there are only a few buyers Like

typically these air high cost items or items limited by

regulations Think defense military rockets all that kind of stuff

Yeah or could be items with a very very specific 00:06:39.093 --> [endTime] market No