Why is the automobile industry considered an oligopoly? (2024)

The automobile industry is considered an oligopoly because it has considerable boundaries to enter it, it relies on brand loyalty and image to make sales, and it is dominated by three major automobile companies.

The three companies that rule the automobile industry in the United States are General Motors (GM), Chrysler, and Ford. The main concept behind an oligopolistic market is that only a few companies dominate a particular market. These companies then collude with one another to set prices.

This ensures not only the companies' survival but also their mutual ascendance and usually massive profits. In a sense, GM, Ford, and Chrysler have worked with each other to make sure no other US car company can enter the marketplace, therefore guaranteeing each of their successes.

Here are the key features of an oligopolistic market:

• There are only a very limited number of sellers for a specific type of product

• The sellers involved either sell a differentiated product or a similar product

• Companies are unable to enter or exit the industry's market at will

• Companies participating in oligopoly must invest large amounts of money

• The companies are competitors, yet they work together in certain ways

• Price rigidity is at an extremely high level in the market