Oligopoly in the US Economy

For my research paper I decided to write about monopolies. I chose to write about monopolies because I wanted to learn more about them. No this type of monopoly is not a board game in which consumers engage in buying houses or property with fake money. Instead this type of monopoly is a firm that is the only seller of a good or service that does not have a close substitute. An example of a monopoly is natural gas company or Time Warner Cable or Microsoft and its Windows operating system. Although few people like monopolies and even though few companies are monopolies, the model of a monopoly can be useful. You see a monopoly is useful in analyzing situations in which firms agree to act together as if they were a monopoly. Monopolies are not illegal in the United States. What is illegal is actions taken by monopolies to limit competition. But there are times when one supplier in a market is better than a competitive market? Should the government work to protect that one supplier in a market?

An oligopolistic market is one that has several dominant firms with the power to influence the market they are in; an example of this could be the supermarket industry which is dominated by several firms such as Tesco, Sainsbury’s, and Waitrose etc... Furthermore an oligopolistic market can be defined in terms of its structure and its conduct, which involve various different aspects of economics.

Oligopolies are a type of market structure evident in Australia, which is comprised of 2 or more firms having a significant share of the market. In an oligopoly the few firms sell similar but differentiated or homogenous products and is characterised by a large number of buyers making it a form of imperfect competition. This market structure is evident through the Big Four Banks, Phone Industry - Vodafone, Optus and Telstra.

Finally, you may be asking “Are oligopolies harmful or beneficial to the consumer?” There are some economists who view oligopolies as negative, stating that they artificially inflate prices and inhibit healthy competition between companies. They claim oligopolies are one step away from monopolies, and that without restriction placed upon their activities, oligopolists will tend toward monopolistic price fixation. However, these statements are normative, and completely unfounded. The fact is that firms do not strive to be monopolies. They prefer some healthy competition. It keeps them current and innovative, and provides the framework for cutting costs, finding more efficient production methods and developing new products. Most importantly, it keeps them out from under government scrutiny, as a monopoly would be. Consumers benefit from this in the form of lower prices and more variety. In fact, as you look at our current economy, you can see these points supported everywhere. First, the competition

Back when the America was divided in thirteen states, the commerce was small and still had many points to improve. As the time passed, these small business started to make commerce between different states, and, consequently, required the government to create laws regulating the commerce, such as the Interstate Commerce Act. With the help of the government, the economy started growing, and so, many monopolies started to appear and so to control business. Years later, these monopolies were much bigger and consequently, the prosperity of country was threatened since there were any competition, nor any incentive to provide best products opportunities. Therefore, the U.S. government was now required to create new laws regulating and intervening in the economy, even though going against the capitalist ideal.

1. In the United States, the government has played an important role in production in several sectors, although its role is far more limited than in most other countries. Market failures provide an explanation for government intervention, but not an explanation for government production.

An Oligopoly refers to a market structure where-by the suppliers have formed some form of cartel and are acting in unison. In such a case the suppliers have the power to determine the price of the commodity and may set any price.

2. Oligopoly occurs when a small number of suppliers control a significant share of supplies. In this case, each of the suppliers to take into account the reactions of other suppliers to changes in market activity. Products manufactured oligopoly may be homogeneous, e.g., aluminium or differential such as cigarettes and automobiles. For example, due to the fact that it requires a huge financial cost, very few companies can afford to enter the market of oil refining or production of steel. In some industries, requires a certain level of technical and marketing skills, which is an insurmountable barrier for many potential competitors. Companies on the oligopolistic market try to avoid price wars due to the fact that this approach is costly to all involved in the war.

As illustrated by Sloman and Hinde (2007), an Oligopoly by nature has price stability, even when there has been no collusion between firms. This theory is based on two assumptions. For example, if Tate and Lyle were to lower their prices, British Sugar and the other rivals would feel the need to follow suit to prevent losing customers to Tate and Lyle. Contrastingly, if British Sugar raised their prices, Tate and Lyle would not follow suit. They would keep their prices the same and gain customers from British Sugar. The kinked demand model illustrates this.

Many people believe that monopolies are bad for society. Large corporate monopolies prevent small business owners and start up companies from competing in the market. Some would say that this type of market would be preventing the American dream. Large corporations keeping the little man down, but has that always been the case? Throughout the economic history of the United States there have been times when monopolies have benefited people. For example, John D. Rockefeller build the major monopoly Standard Oil in 1800s. During this time people, who could afford it, used kerosene to light their homes (Constitutional Rights Foundation, 2000). There were no regulations or standards that had to be met during the production of kerosene. A man could

I feel that the United States government should have a larger role in our economy. I feel this because if there is a monopoly, other buisiness will not be able to stay open for very long. If there was a monopoly, they would be able to charge whatever they want for low quality goods. For example, Wal-Mart is kind of a monopoly. A lot of Mom and Pop who sell some of the same stuff as Wal-Mart are having to close down because more people are going to go to Wal-Mart.

The first concept I am going to discuss is an oligopoly. There are several characteristics that make up an oligopoly. One characteristic is that there are many firms in the industry but only a few firms that make up the majority of the market share. In the United States soda market, three firms (Coca-Cola, Pepsi, and Dr. Pepper Snapple Group) make up almost ninety percent of the market (Schiller, 246). Another characteristic is that in an oligopoly, the oligopolists have substantial influence over price (though one oligopolist is usually the price leader). This market power is determined by the number of producers in the industry, the

In oligopoly market, each firm has substantial market power with high degree of interdependence. The key for success in a oligopoly market is to gain more market share than the competitors. Increasing the price can lead to loss of market share to the competitors, so in the oligopoly market, if a firm decreases the price, the other firms will always follow, but if a firm increase the price, the other firms will not follow. The demand curve is kinked.

Another quality of perfect competition that may be overlooked, but is vital to this industry is the ease of entry into the market. Start-up franchises within this market structure can begin operating with relatively low initial investments (compared to other industries). This is not the case where monopolies are concerned. There are numerous barriers to entry into monopolistic market structures, capital being one of the most prominent barriers.

In oligopoly, industries are dominated by a small number of large firms, though in any one industry the firms are likely to vary in size. The concentration ratios of these firms tend to be fairly high. This means that, for example, the largest four firms in the industry accounts for 70% of the market share. The implication of this is that firms in oligopoly are interdependent. The actions of one firm will directly affect the others. Each of the large firms in the industry has to try and predict the actions of the others. They may collude to avoid this.