StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Oligopoly and how it deals with competitive forces it faces - Essay Example

Cite this document
Summary
Oligopoly refers to a market structure where few firms are dominating the market, while there could be several other firms operating in the same market, which are also sharing the same market with the few large firms. When such large firms are dominating the market, they tend to…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.2% of users find it useful
Oligopoly and how it deals with competitive forces it faces
Read Text Preview

Extract of sample "Oligopoly and how it deals with competitive forces it faces"

Oligopoly and how it deals with competitive forces it faces Grade (14th, April. Oligopoly and how it deals with competitive forces it facesOligopoly refers to a market structure where few firms are dominating the market, while there could be several other firms operating in the same market, which are also sharing the same market with the few large firms. When such large firms are dominating the market, they tend to control either the price of the product, or the quantity of the product to be availed to the market, so that their profit margin can remain at the desired level.

This way, the few markets dominating a market must collaborate to ensure that they act in unison, and thus sets the pace of the market in the manner that is highly favorable to them. There are several strategies that the oligopolies apply to deal with the forces of competition. The first strategy applied by an Oligopoly and to deal with competitive forces it faces, is Price fixing. Price fixing refers to a situation where the main large firms that are operating in the market agrees to set the price of the products they offer at a certain level, through collusion, which in turn serves to dismantle the whole market by stifling any operations of the free market concept (Baye, 2010).

The oligopoly achieves this through controlling the demand and supply of the products they offer, since the other market operators are small and therefore cannot meet the market needs of the product or service. This strategy shifts the prices from the existing price level, to a price level that destabilizes the market and disorients the other small market operators (Baye, 2010). This effectively eliminates the competition emanating from the small firms. Limit pricing is yet another strategy that is applied by oligopoly to deal with competitive forces that faces it.

This entails a situation where the oligopoly fixes the prices at the lowest possible level, which makes the market very unattractive for other market players, such that they opt out of the market, since their attempt to operate at that market will not earn them any profit, and may even lead to losses (Baye, 2010). Through applying this strategy, the oligopoly manages to move the competitors out of the market, taking the advantage of the economies of scale of production, because it is a large firm.

This way, the oligopoly is left operating singly in the market, and can therefore increase the prices to the highest level possible; to make-up for the duration it was fighting competition, and thus did not earn profits (Baye, 2010). Tying is another strategy that is applied by the oligopoly to overcome the competing forces that it faces, through combining two related products and selling them to the customers jointly (Baye, 2010). This way, the oligopoly is able to discharge two items in a single sale, by forcing the customer to purchase the other related product, considering that the oligopoly dominates the market, and thus the customer has no choice but to purchase from the firm.

This way, the oligopoly earns substantial profits while the other competing market operators lag behind, which eventually sees them thrown out of the market. ReferencesBaye, M.R. (2010). Basic Oligopoly Models in Managerial Economics and Business Strategy. (7th ed.). New York, NY: McGraw-Hill Irwin.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Oligopoly and how it deals with competitive forces it faces Essay”, n.d.)
Oligopoly and how it deals with competitive forces it faces Essay. Retrieved from https://studentshare.org/macro-microeconomics/1621005-oligopoly-and-how-it-deals-with-competitive-forces-it-faces
(Oligopoly and How It Deals With Competitive Forces It Faces Essay)
Oligopoly and How It Deals With Competitive Forces It Faces Essay. https://studentshare.org/macro-microeconomics/1621005-oligopoly-and-how-it-deals-with-competitive-forces-it-faces.
“Oligopoly and How It Deals With Competitive Forces It Faces Essay”, n.d. https://studentshare.org/macro-microeconomics/1621005-oligopoly-and-how-it-deals-with-competitive-forces-it-faces.
  • Cited: 0 times

CHECK THESE SAMPLES OF Oligopoly and how it deals with competitive forces it faces

The Possibilities And Effects Of Raising Prices Above Competitive Levels In Oligopolistic Markets

Altering the price in a particular firm would impact the entire market since one of the market forces is altered.... The probability of raising prices above the competitive levels demand a detailed understanding of the oligopolistic markets and the influential trends involved.... In this piece, the mention of the possibilities would imply the probability of occurrence of raised prices above the competitive levels.... Again the choices by the firms in the market that attribute to alteration of the prices beyond the competitive levels have consequences....
10 Pages (2500 words) Assignment

Regulatory Commissions of Industrial Regulation

The second market structure that also faces regulation is an oligopoly market structure.... [Djankov, Simeon et al, 2002] The competitive market structures are effected through the laws that govern their operations and competitive strategies.... The monopolistically competitive markets have been forced to provide enough information regarding their products.... The government analyses how the consumer is to be protected and also when there should be the intervention from other sources....
8 Pages (2000 words) Essay

Market Model Patterns of Change

Their products are nearly identical; hence, the companies involved compete for the market share, and are independent due to the market forces.... The Bertrand model and the contestable markets theory leads to a long run oligopoly market-equilibrium price and output solution, which is similar to that achieved in a competitive market (International Business, 2009).... Areas in the company that could lead to transaction costs include the global environment, the competitive environment and the socio-cultural differences....
5 Pages (1250 words) Essay

Why are Oligopolies Tempted to Collude Even if it Means Breaking the Law

This essay deals with oligopolistic market structures and incentives that push them towards collusion.... This essay deals with oligopolistic market structures and incentives that push them towards collusion.... However, it is mostly not as easy as a question of operating at this point; the more competition the firm faces, the lesser it will be able to manipulate the consumers for its own economic gain (Sloman and Wride, 2009).... Therefore, the demand curve faces a kink at the existing market price level and market price will not change for small changes in production cost etc....
7 Pages (1750 words) Essay

A Strategic Marketing Assignment on Etisalat

Etisalat is the biggest and oldest telecommunication company in the UAE.... This report aims at understanding and highlighting the current situation of the company both internally as well as external basis.... A deep analysis of the company has been made within this report.... hellip; The telecom industry of the Middle Eastern countries has seen a continuous growth....
18 Pages (4500 words) Essay

Entry barriers of Underground construction industry in Russia

The Russian construction industry is one of the many industries in the economy that faces market entry barriers, prior to the different market structures evident in the industry.... Participants in these markets face enormous forces that are market-based, depending on the market they operate in.... Amid the aforementioned sources of entry barriers, Porter's five forces are critical to account for.... These forces account for the markets trends and business undertakings that make one market hard to enter compared to other markets....
4 Pages (1000 words) Essay

Differences between Oligopolistic and Monopolistic Markets

They are able to make abnormal profits because the market is not affected by the natural forces of demand and supply and they can therefore sell their products at the prices they choose.... In the long run, firms in a monopolistic market have to adjust to the forces of demand and supply in order to deal with the competition.... As more firms enter into a monopolistic market, the competition starts to move towards perfection and firms in the market have to respond to the forces of demand and supply....
4 Pages (1000 words) Essay

The Business Environment of IKEA Company

IKEA deals with one niche of the retail sector which is home furniture, appliances and accessories.... In 2008, the company acquired the position of one of the leading furniture retailers globally.... IKEA is popular for its minimalistic and eco-friendly furniture.... The… IKEA was founded by Ingvar Kamprad, a Swedish 17 year old who went on to become one of the worlds richest person last year. Generally, there are four kinds of organizations: for-profit organization, The purpose of these different types of organizations are: Non-profit Organization: Such organization operate to provide services to the community without working on making any profits....
10 Pages (2500 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us