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Traditional economic theory suggests that oligopolies are likely to act against the public interest by charging higher prices than would be the case under more competitive conditions. Being able to charge these higher prices allows the firm to earn supernormal profits. As a result oligopolistic firms are likely to be both allocatively and productively inefficient. Opponents of oligopoly also point out that it often leads to collusion between firms which results in higher prices and a poorer deal for consumers.
However, those in favour of oligopolies argue that they drive innovation. They argue that oligopolistic firms will use some of their supernormal profits to fund research and product development and as a result will create dynamic efficiency. They also argue that an economy will benefit from permitting oligopolistic firms to develop as it allows firms to become large enough to gain the economies of scale necessary to survive in a global marketplace.
lydiajane74 answered the question on July 4, 2018 at 13:38
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