Stackelberg Model

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.

An oligopoly is a market structure that is composed of only a handful of companies that together have complete control over the sale of certain goods or services. In contrast, a “monopoly” exists when a one particular company is the only supplier of goods or services in a certain market. Examples of monopolies that we are familiar with include Ameren, the company that supplies our electricity and natural gas, and Illinois American Water, the company that provides our water.

An oligopoly is a market structure in which a few firms or producers dominate, with each recognizing their interdependence. Under perfect competition or monopolistic competition, there are many firms in the industry. Each firm can ignore the effects of its own actions on rival firms. However, the key to an oligopolistic industry is the need for each firm to consider how its own actions affect the decisions of its relatively few competitors. In an oligopolistic market structure, the consideration of pricing behaviour and actions of one firm to its rival firms is of

Oligopoly is a market structure in which a few firms dominate the market (Jocelyn Blink & Ian Dorton, 2012). The market may have a large number of firms or just a few, but the important idea is that the industry’s output is shared by a small number of firms. It is possible for oligopolistic industries to differ, in the sense that some industries would produce the same kind of products, where the product is practically the same and only the companies name is different. On the other hand, there are also industries that produce completely different product and also ones that produce products that are only a bit different from each other, but these firms do tend to spend most of their budgets to advertise their products (Jocelyn Blink & Ian Dorton, 2012). There are a few main characterises of firms that operate as oligopolies these include:

equilibrium. The new company is now run as a monopoly, and this paper shall explain

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

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.

Monopolistic competition and Oligopoly are considered imperfectly competitive markets that are a result of few to many firms offering differentiated products. Differentiation of products impede substitution, which allow producers to earn higher than normal profits and thereby enhance shareholder wealth (Byrd, J., Hickman, K., & McPherson, M., 2013). Oligopolies are highly interdependent, with actions of one firm will resulting in a reaction from another. The interdependence results in higher efficiency as a necessity to compete with rivals. According to Claessens "greater development, lower costs, enhanced efficiency and a greater and wider supply resulting from competition will lead to greater [financial] access (2009).

Due to uncertainty, firms may want to ensure a stable amount of profit, collusion may be an option for them.

The monopolistic rivalry business structure incorporates numerous organizations offering somewhat separated items. There is a simple passage into the business sector by new firms over the long haul, and the organizations are sufficiently extensive to impact the aggregate supply. There are likewise various measurements of rivalry, including dissemination outlets, promoting, and item characteristics. The peripheral expense will be not exactly the cost at its benefit amplifying yield level. As indicated by the content, a monopolistic contender can't make long-run benefit (Colander, 2013).

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.

Markets differ in a variety of ways including the degree of concentration and competitiveness, a fact which is reflected in the concept of ‘market structure’. Economists’ models link the structural characteristics of a market to the behaviour of firms in that market and subsequently to their performance. A key question therefore is how far a firm’s strategic decisions are shaped by the structure of the market in which it operates.

This select gathering of firms has control over the value and, similar to a syndication, an oligopoly has high hindrances to passage. The items that the oligopolistic firms produce are regularly almost indistinguishable and, in this way, the organizations, which are vieing for piece of the overall industry, are related as an aftereffect of business powers. Expect, for instance, that an economy needs just 100 gadgets. Organization X delivers 50 gadgets and its rival, Organization Y, creates the other 50. The costs of the two brands will be related and, in this way, comparative. Along these lines, if Organization X begins offering the gadgets at a lower value, it will get a more prominent piece of the pie, in this manner compelling Organization Y to bring down its costs

When companies are making decisions, the companies do not worry about how the rivals will react, in part to each company’s actions are unlikely to affect its rivals to a great extent hence they are independent. In addition, there is perfect knowledge in the market hence new companies have the freedom to enter into the industry. The companies are also profit maximizers, producing output where marginal revenue equals marginal cost; the profit maximising condition. Companies in a

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