An analysis of the strategic behavior of an Oligopoly

Kategorie: Ekonómia (celkem: 501 referátů a seminárek)



An analysis of the strategic behavior of an Oligopoly

Oligopoly, (Greek, 'few sellers') one of the imperfectly competitive market structure where a few large firms dominate the market. This is a basic definition of one of the market structures often called “Big business” market structure because the companies in this type of market structure are the top companies with lots of investments huge labor and big market value. These companies are also best known in the world because they usually compete in worldwide market and not a domestic market and spend a huge amount of their profit on advertising. There are two types of oligopoly
1.Impure oligopoly that has a differentiated product
2.Pure oligopoly that has a homogeneous product
Homogenous product means that product the company is producing is identical with any other same product that different company is producing. These products are usually not as many as differential products for example steel, gold, wheat and etc. are all homogenous products because there are very few differences among them.
While homogenous products are almost identical differential products are all the other products any company is producing and even when products are similar in many ways there still can be lots of differences between each product.
Another characteristic of oligopoly is that in this market structure there are few sellers that are in the market. This is mostly because they are using a huge amount of money to run their businesses and usually there are just three of four firms that dominate the market. The question is how many companies are few. The answer in oligopoly is that this market structure is consequence of mutual independence.
Mutual independence means that action of one firm will cause a reaction on the part of other firms are on the market. This means that oligopoly with its few powerful companies makes it easier for a big company to collude. This mutual interdependence basically mean that when one company of “big four“ will change their price the other three will make similar or same decision to keep their market or to have a chance of bigger portion of the market. They are doing this because each company can not afford losing their portion of the market. In other market structures this is impossible, due to luck of monopolistic rules where are lots of companies. Last basic characteristic of an oligopoly is that there is a difficult or almost impossible entry to market for new companies.

This is because these four companies that are dominating the market have enough power and resources not to let new companies to steal their piece of the pie. They are competing among each other and there are huge amounts of money involved in this “fight“. Also it is very hard to exit the market for a company because exit of the company from this market can actually make lots of economic problems for economy in the country where company is situated. There are even other barriers for new companies to enter the market and one of them is legal barrier. This means that government will not grant permissions for new company to enter the market due to safety or other reasons (Water, oil gas companies).
Sometimes these companies that are the oligopoly collude in a cartel, that is a secret (against the law in most countries) cooperation with each other so they can control the market and keep prices high. When cartel is in action producing results are similar that to a monopoly, sometimes they are anti-competitive only by default, because they fear that direct competition would damage all of them. Their actions, therefore, try to take account of the reaction of other oligopolists; this usually happens when cartel is secret. Since it is uncertain, how will each company behave, whether they will cheat on cartel to make bigger profit or they will not, the behavior of an oligopoly is hard to predict. If companies realize that cartel is not working and other companies are breaking the rules of the cartel and cheat a price war breaks out. Oligopolists will produce and price much as a perfectly competitive industry would; at other times they act very like a monopoly.
Homogeneous, or pure, oligopoly involves rivalry among a few producers of products, which are identical with one another. Differentiated oligopoly involves rivalry among a few producers of products, which are similar (in the eyes of the purchasers) but not identical. Monopolist competition is another kind of market which also comprises rivalry among producers of differentiated products, but the market contains a large number of producers rather than just a few.
Oligopoly is considered a common market condition. A localized example of interdependence among a few is the location of three petrol stations on three corners of a rural intersection. If one lowers the price per gallon the others will follow or lose most of their business. Examples in national markets include the automobile industry, the tyre industry, the steel industry and the beer industry.

Some small firms may operate at the periphery in national markets dominated by a few, with their actions failing to elicit any reactions, but a giant firm must anticipate reactions from its fellows when it introduces a change. The other important thing in rivalry among companies in oligopoly is not just the price war, lowering and rising the prices in need of getting larger slice of market, more important in oligopoly is nonprice competition.
Companies are using their profit an unbelievable amount of money on nonprice competition, which is mainly advertising and product differentiation. Advertising is a very common thing in our lives but if we take a closer look at the advertising we realize that it is mainly these big companies that are making most of the advertising through out the world. It is very important for them because the market has its portions already made and it is very difficult for company to maintain that portion or even take a bigger portion of the market. Advertising is mostly the way to get ahead. They also use product differentiation even on products that are not even different for example they can use advertisement “Old foxes steel is better then any other“. Nonprice competition is actually considered among economists as one of the four oligopoly models. The second one is cartel that I already explained so the third model is kinked demand curve.
The kinked demand curve model oligopolists realize that when one company decrease their prices other companies will follow because they don‘t want to loose their portion of the market. But when one company decides to increase the prices other companies will ignore the prices and hope they can again take part of market with lower demand for goods supplied by company that raised its prices. If the firm cuts its price, their rivals will match the price decrease. A relatively large price decrease will, therefore result in a relatively small increase in sales that is called Inelastic Demand as shown on the graph bellow:

If the firm raises its price, their rivals will respond by ignoring the price change. A relatively small price increase will, therefore, result in a relatively large decrease in sales that is Elastic Demand as shown on the graph:




Firms realize their interdependence and that they will benefit if they cooperate in setting prices. The cooperation need not be through secret deals (although this has happened), because Price Leader may emerge.
Another characteristic of this market structure is "price rigidity".

Firms in this market structure use the same decision rule to maximize profit as in all other market structures.
To maximize profit, select the level of out put where Marginal Revenue = Marginal Cost.

You can realize from the graph above that the profit maximizing level of output and price (at the kink in the demand curve) is not going to change even though the costs to the firm change. When marginal cost increase from MC1 to MC2, the profit maximizing level of output does not change. MC1 and MC2 are equal to MR at the same level of output. The result is that prices in an oligopolistic market are less flexible than in other market structures. Costs can change, but prices might not. Firms may wait for the price leader to change the price. Firms in an oligopolistic market structure might have and usually have the goal of maintaining market share, rather than maximizing profit.
The last fourth oligopoly model is called price leadership. Price leadership is something that economists refer as a game of follow-the-leader, it is a pricing strategy that one leading or dominant company perhaps the one that owns the biggest market share sets the price for the whole industry and others will follow. Companies are sometimes matching the prices with the biggest company. This oligopoly model is very common. Oligopoly is a market structure even though is much more difficult to evaluate when compared to other market structures, is very common in today’s society and as we move on in new century and companies are getting bigger and more powerful every day, with the vision of global market it is certain that this market structure is going to be in the future world market a dominant market structure.













References



Tucker, I. B. (2000), Market structures; Monopolistic competition and oligopoly, Economic for Today. South-Western College Publishing.

Microeconomics on-line [2001, April 23]

[2000,April 27].

KADDU EDWARD, | 30. dubna 2008
KADDU EDWARD, | 30. dubna 2008
KADDU EDWARD, | 30. dubna 2008
KADDU EDWARD, | 30. dubna 2008
KADDU EDWARD, | 30. dubna 2008
Re:
no one, | 30. dubna 2008
Re:
no one, | 30. dubna 2008
Adrian
Adrian, http://www.mrt.gov.gh/about-us/ | 08. července 2014
Have you got a telephone directory? tramadol online cod payment 001 Not MA Eligible
Sara
Sara, http://www.e-brane.com/servicos/ | 11. července 2014
Will I get paid for overtime? http://www.e-brane.com/servicos/ dapoxetine in australia Orientation, grading and evaluation tools
dogkill
dogkill, http://www.centernewton.org/plan/ | 11. července 2014
I've just graduated clonazepam price cvs SECTION 80 PHARMACY SERVICES4/1/7 9
A Ukrainian journalist http://www.coachoutletstoreinuk.com/ detained Tuesday by pro-Russian http://www.coachfactoryoutletanus.com/ rebels while working as a freelance producer for CNN has been freed. http://www.coachoutletonlineunsius.com/ Anton Skiba called CNN on Saturday to confirm his release. http://www.coachoutletonlinetur.com/ CNN also received visual confirmation that Skiba is free from sources on the ground in Donetsk.On Tuesday evening, http://www.coachfactoryoutletnbsa.com/ armed fighters led by a senior official from the self-declared Donetsk People's Republic were waiting outside the Donbass Palace Hotel, http://www.coachfactoryoutletuisa.com/ in the rebel-controlled city of Donetsk, http://www.coachoutletstorenie.com/ as CNN television crew returned from a day's work at the crash site of Malaysia Airlines Flight 17. http://www.coachfactorystoreuin.com/ Skiba had worked for one day with the CNN crew when he was detained.Skiba's work as a journalist for CNN also encompassed translating and providing local knowledge. http://www.coachfactoryoutletreba.com/ An official with the Donetsk People's Republic initially accused Skiba of "terrorism" and of posting offers, http://www.coachfactoryoutletonlinesius.com/ on his Facebook page, of cash rewards for the killing of rebel fighters. http://www.coachoutletonlinetnse.com/ The official later dropped the accusation about the Facebook posts and said Skiba was being questioned for having multiple forms of identification with different surnames. http://www.coachoutletnoia.com/ On July 11, Alexandr Kalyussky -- the senior official who detained Skiba -- was added to the growing list of rebel officials to http://www.louisvuittonoutletine.com/ face sanctions from the European Union. http://www.chaneloutletinaus.com/ Skiba had previously also worked as a freelancer for the BBC for two days in the wake of the MH17 crash. http://www.louisvuittonoutletina.com/ A journalist at the Moscow-based weekly http://www.guccibeltsoutletbcus.com/ magazine Russian Reporter told CNN that Skiba also worked for several months http://www.guccibelststco.com/ in 2013 as a photographer for the publication.
I live in London http://www.theformation-cc.co.uk/building-a-brand bimatoprost online without prescription The highest number of convictions, 11, involved special agents for OPM. Another seven convictions were of employees of USIS, a Virginia-based company that has come under scrutiny for its role in vetting former National Security Agency contractor Edward Snowden and more recently, Washington Navy Yard shooter Aaron Alexis.
polo, | 09. srpna 2014
http://www.shopbestgoods.com/ Coach Outlet Online http://www.nike-jordanshoes.com/ Nike Jordan Shoes http://www.beatsbydreoutlet.net/ Beats By Dre Outlet http://www.michaelusakors.com/ Michael Kors Outlet Online http://www.polo-tshirts.com/ Ralph Polo Outlet Online http://www.northsclearance.com/ North Clearace Outlet http://www.ralph-laurensale.com/ Ralph Polo Outlet http://www.guccishoesuk-2014.net/ Gucci Shoes Outlet http://www.michaelkorsstates.com/ Michael Kors Outlet http://www.polooutlet-store.com/ Polo Outlet Store http://www.ralph-laurenhome.com/ Ralph Lauren UK http://www.marcjacobsonsale.com/ Marc Jacobs On Sale http://www.mcmworldwides.com/ MCM Outlet http://www.salongchamppairs.com/ Sac Longchamp Pairs http://www.canada-gooser.com/ Canada Goose Outlet http://www.burberrybags2014.com/ Burberry Outlet http://www.michaelkors.so/ Michael Kors Outlet http://www.hermes-outletonline.com/ Hermes Outlet Online http://www.oakley-sunglassfactory.com/ Oakley Sunglaases Factory http://www.north-faceoutlet.us.com/ North Face Outlet Online http://www.moncler-clearance.com/ Moncler Clearance http://www.woolrich-clearance.com/ Woolrich Clearance http://www.barbour-jacketsoutlet.com/ Barbour Jackets Outlet Online http://www.moncler-jacketsoutletonline.com/ Moncler Jackets Outlet Online http://www.monsterbeatsbydres.net/ Monster Beats Outlet http://www.louis-vuittonblackfriday.com/ Louis Vuitton Outlet http://www.lv-guccishoesfactory.com/ Louis Vuitton Factory http://www.mcmoutlet-jp.com/ MCM 店铺 http://www.cheapdiscountoutlet.com/ Discount Clothes Sale http://www.michael-korsfactoryonline.com/ Michael Kors Factory Online http://www.coach-factoryoutlets.net/ Coach Factory Outlet http://www.coach-blackfriday.net/ Coach Black Friday http://www.coach-storeoutletonline.com/ Coach Store Outlet Online http://www.coach-factoryoutletonlines.com/ Coach Factory Outlet Online http://www.coachcoachoutlet.net/ Coach Outlet http://www.coach-factory.net/ Coach Factory http://www.coach-pursesoutlet.net/ Coach Purses Outlet Online http://www.coach-outletonline.net/ Coach Outlet USA http://www.mksfactoryoutlet.com/ Michael Kors Factory Outlet http://www.zxcoachoutlet.com/ Coach Outlet Online USA http://www.mischristmas.com/ Coach Factory Outlet Online http://www.misblackfriday.com/ Black Friday http://www.newoutletonlinemall.com/ Coach Purses Outlet Online http://www.clickmichaelkors.com/ Michael Kors USA http://www.cmichaelkorsoutlet.com/ Michael Kors Outlet USA http://www.ralphlaurenepolo.com/ Ralph Lauren Polo
How much is a Second Class stamp? http://www.keaneyinsurance.ie/index.php/about-us/ buy cheap amoxil The companies would also have to carry a minimum $1 million per-incident insurance policy for vehicles and drivers, which is more stringent than rules that require limousines that carry seven or fewer passengers to carry $750,000 in coverage. They would also have to implement a zero-tolerance policy on drugs and alcohol.
What sort of music do you like? http://www.clsecurities.com/mutualfunds.html ciprofloxacin 500mg In a move to help the housing market, since October 2011 theU.S. central bank has been using funds from principal paymentson the agency debt and agency mortgage-backed securities, orMBS, it holds to reinvest in agency MBS.
Joseph
Joseph, http://www.hamptonframes.com/about-us/ | 01. září 2014
Canada>Canada maxalt melt 10mg oa He believes scientists will soon be to do the same, designing basic organisms to include features useful in farming or medicine, as well as sending robots into space to read the sequence of alien life forms and replicate them back on Earth.
I'd like to apply for this job cipronatin 750 mg filmtabl Asked about reports that around 20 House Republicans havesaid they would join some 200 Democrats in voting for such abill - enough to pass it - Boehner told ABC that there were notenough votes in the chamber to pass such a bill.
Which team do you support? buy eriacta online qk Law Professor Adams also said Rinehart could sufferreputational damage if found to have breached corporategovernance rules, an outcome that could be unsettling for futurenegotiations with investors.
I work here buy cheap domperidone rx The toll on the athletes’ bodies is well-documented and largely accepted as a part of life in an unashamedly attritional sport, but the impact of these collisions on the brains of players throughout their careers has now been brought to light by PBS documentary “League of Denial”, broadcast in the United States last week.
We'll need to take up references how to buy online essays? He quickly grabbed a hose and extinguished the flames on Onyx then took the hose to another section of the house where the fire had started. The Florida Fire Marshal's office is investigating the cause of the blaze, which resulted in about $5,000 damage to the couple's house.
I saw your advert in the paper the college essay "The July home prices in 70 major cities are still rising due to strong demand from first-time home buyers and recent rising land prices," Liu Jianwei, a senior statistician at NBS, said in a statement accompanying the data.
Isabella
Isabella, http://bartleyridge.net/price/ | 15. září 2014
I'd like to open a personal account paxil withdrawal how long on The full impact of low interest rates on savings still has not occured yet. I was fortunate enough to purchase 5 year CDs with my savings during the past few years. I even have one CD that I am still getting near 6% on through the middle of 2014, but more recently I have had to renew the others at far lower rates. The question for myself is what to do with CDs that continue to come due. Stocks? Gold? Real Estate? My feeling is that stocks will stay about the same, maybe increase slightly, but is the risk worth it? My feeling is No. How about gold? It would not surprise me to see gold fall to $800 or so. Real Estate? In the long run it may be the best investment, but it bothers me that real estate prices are being held artificially high by low interest rates. There is no question that savers are being punished.
We went to university together albendazole without prescriptions ii "The suit I think will show to both the nursing home industry and to states that it is not a viable option to place a human being who could feel, who could see, who could interact into a geriatric nursing home where they have no connection with their family, with their communities," Dietz said. "It's an inhumane practice."
Could I take your name and number, please? term papers for students The acquittal will weaken any wrongful death civil lawsuit that Martin's family might bring. Zimmerman's lead defense lawyer, Mark O'Mara, predicted Zimmerman would seek and win immunity from a civil suit.
I'd like to cancel a cheque buy custom essays cheap The opposite of gazumping is gazundering, where a buyer decides at the last minute to drop their offer. It means the seller then has to decide whether to accept less or find new buyers but is more common in a depressed property market.
Ricky
Ricky, http://toolstolife.com/challenges/ | 23. září 2014
Yes, I play the guitar bamboo dangerous amitriptyline 300mg attract Ubisoft blamed the delay on pressure to meet consumer expectations in the $66 billion hit-driven videogames industry and said the decision would cause it to swing to an operating loss for its 2013 to 2014 fiscal year.
I wanted to live abroad writing services for research papers China's powerful price regulator could target the petroleum,telecommunications, banking and auto sectors next in itsinvestigations into violations of the country's anti-trust laws,state media quoted a senior official as saying on Thursday. (Reporting by Clement Tan; Editing by Richard Borsuk)
We've got a joint account pay someone do my essay uk Under Indian law passed last year, movie theaters are not only required to run public service announcements before and after the movie, but also run health warnings on the bottom of the screen during scenes that feature smoking.
Have you got any experience? commonly mouth order montelukast thorpe endure "It is sexual and degrading. Some are being forced to cut themselves and write on their naked bodies. There has been an increase in children self-harming, seriously self-harming, and seven children in the last couple of years have taken their lives."
I'll put her on complicated purchase fluconazole (diflucan𓢮) qualify Spitzer forced Merrill Lynch to pay a $100 million fine — to New York and other states — for the practice of having supposedly neutral analysts tout and promote stock in companies so that another branch of Merrill could land the same company’s investment business.
Yes, I play the guitar essay for graduate nursing school admission BHP has said previously it believed it had complied with allapplicable laws in regards to its Olympics sponsorship, and saidon Friday it has what it considers to be a "world classanti-corruption compliance program."
Very Good Site feels historic costo di proscar peel thicket Cisco Systems Inc, Apple Inc, Google Inc and other technology powerhouses have been pushing forlegislation that would reduce the number of times each year thatthey are sued for infringement by a "non-practicing entity," acompany that licenses patents as its business. Google hasestimated the cost of such litigation to the U.S. economy at $30billion a year.
57qj7b http://www.QS3PE5ZGdxC9IoVKTAPT2DBYpPkMKqfz.com
Could you tell me the dialing code for ? buy cheapest bimatoprost "By combining it with our VIP SIM Only deal, which gives you unlimited data, texts and minutes for just ÂŁ15 per month, customers can reap the benefits of this slick smartphone without spending a fortune."
Whereabouts in are you from? vine diflucan 100 mg candida posologia another query The costs of health care and pension contributions over the years have outpaced the revenue Detroit was bringing in from property and business taxes and other sources. The city has been unable to make those contributions and pay current payroll and other bills.
Bob
Bob, http://www.kaslodesign.com/web.htm | 26. října 2014
Have you got a current driving licence? overtime lumigan bimatoprost uk shutter grey Data Elite won't be the first entrant specialized in bigdata. Accel Partners, the firm noted for its investment inFacebook as well as big data companies such as software-servicesprovider Cloudera, has started two big-data funds of $100million each.
Nový příspěvek



Ochrana proti spamu. Kolik je 2x4?