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Updated: June 25, 2025
The very distinction between "original" and "copy" becomes obsolete and meaningless. Such ease of replication gives rise to network effects and awards first movers with a monopolistic or oligopolistic position. Oligopolies are better placed to invest excess profits in expensive research and development in order to achieve product differentiation.
Louis Galambos, a business historian at Johns Hopkins University, published a 1994 paper titled "The Triumph of Oligopoly". In it, he strove to explain why firms and managers and even consumers prefer oligopolies to both monopolies and completely free markets with numerous entrants. Oligopolies, as opposed to monopolies, attract less attention from trustbusters.
Therefore, the question of mutual monitoring and control is a key issue in collusive oligopolies." Monopolies and oligopolies, went the contestability theory, also refrain from restricting output, lest their market share be snatched by new entrants.
Mergers, business failures, deregulation, globalization, technology, dwindling and more cautious venture capital, avaricious managers and investors out to increase share prices through a spree of often ill-thought acquisitions all lead inexorably to the congealing of industries into a few suppliers. Such market formations are known as oligopolies.
Why are inventors in America more productive than their French or British counterparts at least judging by the number of patents they get issued? Perhaps because oligopolies are more common in the US than they are elsewhere. Baumol suggests that oligopolies use their excess rent i.e., profits which exceed perfect competition takings to innovate and thus to differentiate their products.
Bell was forced by Covad Communications to implement its own technology, the DSL broadband phone line. Barring criminal behavior, there is little that oligopolies can do to defend themselves against these forces. They can acquire innovative firms, intellectual property, and talent. They can form strategic partnerships.
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