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In a paper titled "If Cartels Were Legal, Would Firms Fix Prices", implausibly published by the Antitrust Division of the US Department of Justice in 1997, Andrew Dick demonstrated, counterintuitively, that cartels are more likely to form in industries and sectors with many producers. The more concentrated the industry i.e., the more oligopolistic it is the less likely were cartels to emerge.
It is incalculably easier to adopt a single worldwide or industry-wide standard in an oligopolistic environment. Standards are known to decrease prices by cutting down R&D expenditures and systematizing components. Or, take innovation. It is used not only to differentiate one's products from the competitors' but to introduce new generations and classes of products.
In his recently published tome "The Free-Market Innovation Machine Analysing the Growth Miracle of Capitalism", William Baumol of Princeton University, concurs. He daringly argues that productive innovation is at its most prolific and qualitative in oligopolistic markets. This is achieved by constant innovation and by incessant advertising.
Still, oligopolistic behavior does not sit well with another of Baumol's observations: that innovators tend to maximize their returns by sharing their technology and licensing it to more efficient and profitable manufacturers. Nor can one square this propensity to share with the ever more stringent and expansive intellectual property laws that afflict many rich countries nowadays.
An Oligopolistic firm also fears the price-cutting reaction of its rivals if it reduces prices, goes the Hall, Hitch, and Sweezy theory of the Kinked Demand Curve. If it were to raise prices, its rivals may not follow suit, thus undermining its market share.
Quoted in the Wall Street Journal on March 8, 1999, Galambos wrote: "Oligopolistic competition proved to be beneficial ... because it prevented ossification, ensuring that managements would keep their organizations innovative and efficient over the long run."
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.
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