Market Structure of Oligopoly

This graph is specific to an oligopoly and shows the change in quantity demanded in relation to the change in price for both elastic and inelastic goods. Total Revenues will be increased, if the firm decreases their price but increase their quantity. Due to the fact that the costs remain the same, the revenue line on the graph can be seen to be steeper than the costs meaning that the profit is higher. The graph therefore also indicates the point where the firm is able to make the most amount of profit, in relation to the price they set and the quantity they produce.

Oligopolistic markets, such as supermarkets or car manufacturing, can be defined in terms of market structure or in terms of market conduct.

This would be “a market structure in which a few firms dominate” (Economics Online, 2015). When this occurs the market takes on a different appearance that is said to be highly concentrated because there may be several businesses operating in the same market. Heavy hitters in the retail industry would be mass merchant entities such as Wal-mart, Costco, and Target. These massive retailers have a share interest in controlling the retail market by manipulating various barriers of entry. Similar to those barriers of entry that are associated with a monopolized market, higher costs and such, these giants can also manipulate pricing to ensure that a newcomer could not compete. Price undercutting or predatory pricing may be done even at a loss for these retail giants if means keeping the oligopoly market structure with fewer new competitors. Various may be use these oligopolists strong name and customer loyalty base. Often times an oligopoly may experience a kinked-demand curve where there are two distinct segments with different elasticities that combine to form a kink. The kinked-demand curve is a good way to explain price rigidity in oligopoly where one segment is relatively more elastic in prices increasing and the other segment is less elastic in prices decreasing. “The relative elasticities of these two segments is directly based on the

1) An Oligopolistic market structure is a structure where very few large businesses sell a particular standard Good or differentiated Good, and to whose market entry proves difficult. This in turn, gives little control over product pricing because of mutual interdependence (with the exception of collusion among businesses) creating a non-price competition meaning they are the ‘price setters’. A good rule to help classify an

2. (Price Leadership) why might a price–leadership model of oligopoly not be an effective means of collusion in an oligopoly?

Oligopolies have been around ever since there is trade. However, it has only recently gained grounds in this age of globalisation. Never before has oligopolistic competition been so fiercely contested across so many industries.

There are many models of market structure in the field of economics. They include perfect competition on one end, monopoly on the other end, and competitive monopoly and oligopoly somewhere in the middle. In this paper, we will focus on the oligopoly structure because it is one of the strongest influences in the United States market. Although oligopolies can also be global, we will focus strictly on the United States here. We will define oligopoly, give key characteristics important to the oligopoly structure, explain why oligopolies form, then give an example of an oligopoly in today’s economy. Finally, we will discuss the benefits and costs in this type of market structure.

There are four types of market structures: Monopolistic Competition, Monopoly, Oligopoly, and Perfect Competition. Monopolistic Competition is also known as competitive market. In this market structure, there are a large number of firms that produce similar but somewhat differentiated products for the same target customers. The market share is also divided among large number of firms making it difficult for one firm to become the market leader. On the other hand, Monopoly is a type of market structure in which only one firm controls the whole industry. There are strict barriers to entry for new firms due to governmental restrictions or the monopolistic power of the firm itself. In Oligopoly, the whole industry is dominated by a few large scale firms that set prices, introduce innovative products, and use heavy campaigns to attract buyers. All other small scale firms follow the changing market patterns set by these oligopolistic firms. Lastly, perfect competition is a market structure in which there are a larger number of firms that produce similar as well as differentiated products for

In a perfectly competitive market each firm is a “Price Taker” , i.e. the prices and wages are determined by the market and the firm is so small relative to the size of the market that they can have no influence over the market price. For a market to be

Based on eq.5, we can make several observations of the properties of Cournot competition. First, given positive market share, firms in Cournot market have the market power to price higher than their marginal costs. Second, the market power of a firm is limited by the market elasticity of demand. The more elastic demand,

•Oligopoly: This is an industry with very little firms in the market. If they conspire, they weaken output and raise profits the way a monopoly would and should do. For example the mobile phone industry is an oligopoly what with so many companies for example Apple, LG and Samsung all competing together. Supermarkets are oligopoly’s as they make supernormal profits as well.

Has the economy ever thought about direct impact from monopoly and oligopoly industries? The structure of a monopoly based industry exemplifies one seller in the entire market. On the other hand, the concept of an oligopoly industry illustrates few sellers that have the potential of making a direct impact in one single industry idea. The economy has depended on the market share of a monopoly and an oligopoly trade. However, a monopoly industry differs from an oligopoly industry due to a monopoly competitor dominates a majority of the market share of many industries and an oligopoly competitor contains few sellers who dominate a market share based on one single industry idea.

“An observation made of oligopolistic business behaviour in which one company, usually the dominant competitor among

considered relative to those of close competitors and with one eye to the likely reaction of rival

Therefore, all firms in the industry would suffer from a sharp fall in profits as they continuously cut prices to compete with each other. Eventually, prices will have to rise again to restore profitability and the firm that started the price war could have lost market share. Therefore firms want to avoid price competition as all firms will lose out in the long term due to reduced profits. So there is an incentive for firms to form a price agreement in order to reduce uncertainty.