An oligopoly is defined as a market situation where the total output is concentrated in the hands of a few firms (Bamford 170). There is interdependency among producers in an oligopoly because each producer must take into account the reactions of other producers following a price cut…
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These barriers discourage new entrants in the oil industry as the existing firms can also take them down in price wars. The market for crude oil refining is an example of an oligopoly. Another significant feature of an oligopoly is that it is dominated by a few large firms which also holds true for the crude oil industry. It is dominated by major players like Kuwait Petroleum Corporation and BP (British Petroleum) Corporation etc. Firms in an oligopoly can decide to collude and act as a monopoly or stay as rivals and compete. When firms in an oligopoly collude, they may agree on prices, market share, advertising expenditure etc. Collusion reduces uncertainty in market regarding prices and since firms do not go for price competition, the total industry profits are not reduced. A cartel like OPEC acts as a single firm or a monopoly and diagrammatically a profit-maximizing cartel can be explained as follows: Since there are few major players, each player exerts significant market power and the bargaining power of suppliers is more than the bargaining power of buyers due to this. Also because of the interdependency feature, there is a lot of scope for collusion among the firms in an oligopoly. ...
Each firm’s demand curve is relatively elastic below the existing price line. This entices firms to cut their prices and win over their rival’s customers and increase the total revenue. However the rival’s response to the price cut can act as a hindrance because if rivals match the price cut, there will be very less room for increased total revenue. If a firm raises its price, then its rivals might not copy the price increase and a significant portion of sales will be lost to rivals. Oil is a commodity that is used as a fuel for transportation, electricity generation, in industries as well as domestically. The world economy at large is dependent on oil and that is how large the demand for oil is. Since there is a cartel in the oil industry, OPEC, the world oil prices have shown an upward trend because OPEC has substantial power to drive up prices. Price elasticity is different in the presence of a cartel because the supply of oil is in the control of OPEC. Under a cartel such as OPEC, the producers try to fix the price and quantity. The output in an oil industry just like any other oligopoly is allocated as per a quota system (Geoff Riley). The aim of this cartel strategy is to maximize profits. Each individual oil firm is given an output quota. But the output quota allotted to an individual firm might not be at its profit maximizing level (Geoff Riley). The only way an individual firm can make profit out of it is through cheating and going against the cartel. It can supply oil at a price lower than the cartel price. The demand for oil under a cartel is not that responsive or elastic to a price change because oil is an important raw material in many industries and also an essential fuel
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“Monopoly, Oligopoly, Monopolistic Competition, or Perfect Competition Essay”, n.d. https://studentshare.org/macro-microeconomics/1432421-monopoly-oligopoly-monopolistic-competition-or.
The researcher states that perfect competition is whereby there are many buyers and sellers dealing with homogeneous products and no participant has the power to determine the price or quality of a product. Monopolistic competition is whereby there are many firms selling similar but not identical products.
Taylor (2007, p. 285) specified that monopolistic competition “occurs in an industry with many firms in free entry; where the product of each firm is slightly differentiated from the product of the other firms.” In the Mankiw (2007, p. 341) perspective, market structure can be classified based on whether one, few, or many firms are in the market; if the market has many firms, market structure can be further identified based on whether differentiated or identical products are sold in the market.
As monopoly proceeds, the consumers will ultimately forego the product, especially consumers who value the product or service more than they value its cost. This tends to create a deadweight loss. The deadweight loss also indicates that the combined surplus for the monopolists and the consumers is always lower than that for perfect competition.
What are the main differences between Monopolistic Competition and Oligopoly market structures? Which of these market structures best serves the interests of the consumer and why?
Monopolistic competition falls under the market structure of imperfect competition where the produces sell differentiated products where the products are not perfect substitutes.
This essay focuses on the relative efficiency of the monopolistic competition, certain key characteristics of that type of market, its advantages to producers and customers. It is argued, that the firms operating in monopolistic competition can benefit greatly and reap benefits that it offers, but the customers do not benefit from it necessarily.
In three years time the patent on the “Neutron” expires and another competitor enters the market making the market an Oligopoly. After a few years, since Quaser faces Monopolistic competition, it has to change its pricing and marketing strategies as there are more competitors and less possibilities of controlling the price
Which form of market is better can be subject matter of discussion and is controversial issue. Perfect market is the starting point around which other market forms should revolve or regulated. The case study of Microsoft Corporation with its monopolistic product in application software used in every computer is given below to highlight the model of Monopolistic from of market.
According to the paper, market structures are important in the sense that they affect the market outcomes, because they have great impact on the motivation and decisions. It is very critical for the business, that market structures are correctly identified and established to identify the correct resources which are to be directed towards them.
The nature of businesses change as their external environment varies. The developed and advanced nations tend to create a mechanism that ensures that the businesses must pay all taxes while serving the society in a reasonable manner. The governments of developed nations
Firstly, a perfect competition situation comprises of a large number of small firms that compete with each other and produce at minimal costs for every unit. Secondly, a monopoly does not have rivals in the industry. It minimizes output to
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