The Main Features of an Oligopolistic Market - Essay Example

Running head: Business Economics Business Economics [Writer’s Name] [Institution’s Name] Table of Contents 1. Introduction …………………………....…...................................................................2 2. Theories ……………………………….............................……………………………2 3. The Demand Curve …………………………………………………..............……….3 4. Supply and Demand ………………………………………..........................................5 5. The Analysis of Oligopoly ………………………………………………………........6 6. Conclusion ……………………………………………………….................................7 7. References …………………………………………….............................................…7 Business Economics What are the main features of an oligopolistic market and how do firms in these markets attempt to compete with each other Introduction When the market is dominated by just some large suppliers around, then it is called Oligopoly. This kind of market is very tough to compete within each other and outside of it as the entry inside is a big hazard. And, inside this market tough advertising and marketing strategies are important to stay alive and stay competing. These firms normally produce brands and these brands normally compete within each other. (Donald, 2010) Normally, the game theory is taken into effect by some economists to study these kinds of effects in such markets as each brand supplier has to deal with interdependence, and they must take into account the effects of the other suppliers and be definitely affected by it. In this theory normally, the decision makers take in to account the decision of other decision makers as it actually helps in determining different factors and political coalitions between them which is healthy in a way and which is also not so effective at the same time. And this game basically becomes the struggle for survival. Main Characteristics: Firms producing brands normally All the firms even though only a few selling the same products  There are a very few entries inside this kind of market so there are numerous profits for firms There is high interdependence of the firms within each other as the price change by one firm highly effects and affects the others in this kind of oligopolistic market Theories: (1) Firms normally cooperate with each other to charge one common price to the customers and then this way every firm gets the whole bunch of profit.  (2) Their basic aim is to compete with the prices so that the price and profits remain the same for all.  (3) The competitive ends of scale would be observed once the price and the profits will have a monopoly in this market. (Jerry, 2010)  The competition between the firms is in the form of market share and the demand from most of the consumers and customers, which is why one firm might reduce the price a little to give most of them a discount which is totally against the ethic with the other interdependent firms. However this way the competition would grow and the watch out will be performed more vigorously so that the market share and the profit is regularly distributed evenly. So, this is called a Price Competition. But there is another form of competition called Non-price competition that basically talks about different other strategies to increase the profits and the market share. Take an example of the British Supermarket Industry where this strategy of non-price has become increasingly effective: Loyalty Cards  Financial Services and Banking facilities  The Post offices and chemists Home delivery systems  Petrol selling on discounted prices at the hypermarkets 24 hours opening hours  Self-Scanning machines for the shoppers Incentives when you shop at the off-peak times Shopping possibilities on the internet for the customers The oligopoly may experience price leadership when one firm has a dominant position in the market. The firms that are smaller will simply follow that trend and they will not be able to accommodate more profits if they don’t do that, and the best example for this can be the hypermarket retailer petrol stations that explain the case very clearly. The Demand Curve The crucial relation of the price of the specified product with what people wish to purchase is called the Demand Curve. This relationship works inverse if the price of that product rises so people naturally will stop buying that product that often which makes it as indirect for a particular product. However, this goes for a very few products but its widespread occurrence in the studies have made it popular among the economists which gives it a special name of the demand curve. A more practical and elementary way to explain the demand phenomenon is by the tables. Below in the table one would notion that the prices of the product increases and the people reduce the buying of that particular product and then there would be a shift. The name Product has been used and the price has been used for the graph purposes: The Curve (Demand) Price of product Number of products People Want to Buy 1.00GBP 100 2.00GBP 90 3.00GBP 70 4.00GBP 40 We can draw the same information in the graph below in a different style of a graph: If one factor that has been constant is kept stuck and doesn’t remain constant anymore, then people will start shifting however; once it gets back to the constant place; it will be again a popular item among the people. For example, take the price of petrol in the hypermarkets; if the hypermarket will keep the price constant; the people will continue filling in their petrol from that hypermarket however once it is raised, or changed the people’s choices will also shift definitely. This relationship will be explained in the below tables and graphs: A Shift in the Curve Price of product Number of products People Want to Buy 1.00 80 2.00 70 3.00 50 4.00 10 Or in another way we can show the same change in the other graph below: Supply and Demand: In an equilibrium state, the sellers selling their products must be equivalent to the buyers buying those products, if any of them gets below or above the line, then the model gets disturbed and the Supply and demand suffers. Demand and Supply Price of Products To Buy To Sell 1.00 100 10 2.00 90 40 3.00 70 70 4.00 40 140 All the above mentioned information would be explained in a different style below: The equilibrium price and quantity will change if the factor that is being held constant reduces or increases. The analysis Oligopoly: This term has been derived from the greek word that means ”Very Few Sellers“ and it has been derived for the particular purpose. Types of Oligopoly: 1. Oligopoly that is impure having different forms of products 2. And, oligopoly that is pure dealing in only homogenous products Basically, a Homogenous product is if the product that some company is manufacturing is same with any other same product that a totallydifferent company is manufacturing. Products for example; gold, wheat and steel are all homogenous products having less differences between them. Conclusions Where almost identical differential products i.e. the homogenous products are all the products that one company is manufacturing and there can be still so many differences between each of them eventhough these have so many similarities. (Barr, 2004). Oligopoly is considered a common market condition. The three petrol stations located on the different sides of a rural area is the localised example of interdependence among a few. If any of those reduces the price, the others will definitely follow suit or most of them to compete. The markets are including the automobile, tyre, steel and the Industry of Beer manufacturing (Gerard, Hassan & Sloan, 1989). References Barr, N. 2004 Economics of the Welfare State, 4th ed., Oxford University Press. Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield. 2010. Intermediate Accounting w/FARS online for 12months. Hardcover Publications Inc. Dunn, J 2010. Financial Reporting and Analysis, Paperback Publications. Gerard, Hassan, Sloan 1989, Journal of Business, Volume 62, no. 4. University of Chicago Press. Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, 2010. Accounting Principles, Peachtree Complete Accounting Workbook, 9th Edition. Stiglitz, J. 2000 Economics of the Public Sector, 3rd ed., Norton Press. Read More