Question

How do oligopolies influence market inefficiencies?

Answer 1

Oligopolies are inefficient as they do not produce the highest overall utility for the society. Since the market of sellers is few they limit the number of products being sold/made in order to limit their cost but increase their profit per unit. This results in the firm's producing the goods to gain more of the utility generated by the market and the consumers receive something much less. The loss of the consumers then out weighs the gain of the producers hence the total utility of the system is lower.