For example, a few years back, the Times of India offered the newspaper at an invitation price of Rs. So these both attitude have conflict among themselves. It illustrates the concept of interdependence. With a decade's experience in providing essay help, MyAssignmenthelp. As for instance, the important feature of oligopoly as noted above signifies that in oligopoly market, there are few firms occupying majority of the market share. Group Behaviour : It is necessary to understand the group behaviour of the firms comprising the oligopoly, i.
Under monopolistic competition advertising plays an important role because of the product differentiation that exists under it, but not as much important as under oligopoly. Conniving and non-conniving oligopoly: It is also known as the cooperative oligopoly. By mutually setting up prices at reasonably higher level, it could be possible to ensure higher level of growth and success of the firm. These may be: e The existence of unused capacity which makes the industry unattractive. Patents, requirement of large capital, control over crucial raw materials, etc, are some of the reasons, which prevent new firms from entering into industry. Price rigidity: Under oligopoly there is the existence price rigidity. Also, sometimes the government regulations favor the existing large firms, thereby acting as a barrier for the new entrants.
The degree of market concentration is very high. By doing so they can use their collective market power to drive up prices and earn more profit. Barriers to Entry of Firms: The main reason for few firms under oligopoly is the barriers, which prevent entry of new firms into the industry. There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others. In brief oligopoly is a kind of imperfect market where there are a few firm in the market, producing either and homogeneous product or producing product which are close but not perfect substitutes of each other. They'd have to come up with a co-branding strategy or a joint venture.
Under the Price rigidity policy, changes in demand and supply will not affect the price of the product and will remain constant. An oligopoly is a market dominated by a few large suppliers. Oligopoly An oligopoly describes a market structure which is dominated by only a small number firms. But, for a new market, they may not have the brand reputation. Examples would be world commodity markets in agricultural crops such as coffee were a few international intermediaries are able to trade the multitude of producers off against one another in order to extract cheap resources. All these features of oligopoly create many problems in the analysis of price and output determination. Cartel: A cartel is when a group of firms decide to agree on leveling out the output.
For example, if a new firm tries to enter a hypothetical telecommunications market it will have to compete against the already existing brand names, set-up a manufacturing unit without any initial sales or income from the business, and will also need to come up with innovative production techniques to sustain itself in the long run. Mutual interdependence creates uncertainty for all the firms. This not only generates publicity for the firm's products and services but also helps to increase its sales. Examples Example 1: The airline industry has only a few airlines that control the market. Few firms dominating the market enjoys a considerable control over the price of the product. Apart from the above reason, there could be other major reasons for which the firms choose not to compete on price.
Under oligopoly with product differentiation each firm controls a large part of the market by producing differentiated product. However, the rival firms will remain vigilant about the moves of the firm taking intiative and will start defensive advertising. However, followings are some main characteristics of the oligopoly. This is due to the advertising that makes the competition intense. Examples of oligopolies Car industry — economies of scale have cause mergers so big multinationals dominate the market. In a perfectly competitive market, entry and exit are assumed to be costless. Oligopolies are prevalent throughout the world and appear to be increasing ever so rapidly.
Apart from taking into account the demand for its products or cost of the products, oligopoly firms also consider the reactions of other rival firms to changes in their price and output policies. New firms cannot enter the market easily due to various barriers of entry. If one firm changes its price, the demand for its product will depend on how its rivals change their prices. They make up 65% of the market. Businesses compete with each other with a view to achieve larger market share so that they can sustain their growth and development. In some countries, output supply needed might be more than other countries or more than the specified output level. However, oligopoly companies consider group discussion, instead of developing pricing strategy on their own.
Examples include - steel, petroleum and aluminum industries. This behavior makes oligopoly a useful jumping-off point for looking at even more complex markets, and for understanding how the concepts of game theory are relevant to microeconomics. The dominance of one firm in the oligopolistic market results in price leadership. Under the circumstances the demand for the product of the oligopolistic firm which makes the first move may decrease. The firm which forms as a result of a merger will dominate and control market supply and prices of other smaller firms. Two firms sell a homogenous product, and you will not get any substitute for those products. This market is dominated by three powerful companies: Microsoft, Sony, and Nintendo.
Each firm has a portion of the market share. However, in the long-run, there are some types of barriers to entry which tend to restrain new firms from entering the industry. However, an important factor in this regard as applicable is mainly in respect to oligopolistic market situation. However, this is extremely difficult because of the tight competition between the main players. Entering Oligopolistic Markets Because of the structure of oligopolies, new firms typically find it difficult — if not impossible — to tunnel into oligopolistic markets that already exist. A high control over market is a good sign that the firm may be an oligopoly.