Paretopoly is an economic term that refers to a market structure characterized by the coexistence of a few dominant firms and numerous small competitors. It is derived from the combination of the words "Pareto" and "oligopoly".
In a Paretopoly, a small number of large firms hold a significant market share, making them the key players in the industry. These dominant firms are often well-established and possess substantial resources, such as high capital investments, strong brand recognition, and extensive distribution networks. This results in a significant barrier to entry for potential new entrants.
While the dominant firms in a Paretopoly exercise a substantial degree of control over the market, there are also numerous small competitors present. These smaller firms, although individually having only a small market share, collectively have a significant influence on the market dynamics. They often cater to niche markets or offer differentiated products, appealing to specific customer needs.
Competition in a Paretopoly is typically intense, driven by both price and non-price strategies. The dominant firms may engage in aggressive pricing, marketing, and other tactics to maintain their market share and deter potential rivals. Nevertheless, the smaller firms also contribute to competition by providing diversity and catering to specific customer preferences.
The existence of a Paretopoly can have both positive and negative effects. On one hand, the dominance of large firms can lead to economies of scale, innovation, and efficiencies. On the other hand, it may result in reduced consumer choices, higher prices, and limited innovation due to lack of competition.
