This essay deals with oligopolistic market structures and incentives that push them towards collusion. In doing so, it discusses the characteristics of oligopolies, collusion, cartels, game theory and the kinked demand curve…
Download file to see previous pages...
A firm achieves maximum profits when it operates where its marginal revenue equals marginal cost (MC=MR). 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). The two extremes in market structures are (i) Perfect Competition and (ii) Monopoly. However, in real life, firms often operate somewhere in the middle of these two extremes. Such market structures are characterized by Imperfect Competition. There are two main kinds of markets that practice imperfect competition: (i) Monopolistic Competition and (ii) Oligopolies. Some famous oligopolistic firms are Pepsi, Coke, Nike, Adidas, Reebok and Nintendo (Sloman and Wride, 2009). In an oligopoly, the number of competitors is less and limited and there are high barriers which prevent frequent entry of new firms into the market. Barriers of entry may be created in the form of brand names, sunk costs, firm size, economies of scale, and large firm advantage (Boyes and Melvin, 2009). Competition between firms in an oligopolistic market is high and intense, it sometimes leads to price wars which become extremely detrimental for their effective functioning. In other instances, these firms choose to collude amongst themselves to minimize the downsides of operating in an oligopolistic market and to simultaneously maximize their profits. The products these firms make can either be differentiated or homogenous. Depending on the product type, there emerge two distinct kinds of oligopolies: pure oligopolies which produce homogenous products, for example the steel industry. Sometimes, however, an oligopoly may produce differentiated products; such oligopolies are called impure oligopolies. An example of such an oligopoly would be the automobile industry. The demand curve for both types of oligopolistic firms is downward sloping and fairly inelastic, there is also a degree of dependency on the reactions of competitor firms to price changes. Another key feature is mutual interdependence, which means that each firm is affected by the actions of its competitors and thus, whenever any firm is going to take an action, it does so with its competitors’ possible reactions in mind. Due to these circumstances there is a high degree of uncertainty in an oligopolistic industry because firms can never accurately predict how exactly their competitors will react to their actions and this any sort of action involves an inherent degree of risk (Sloman and Wride, 2009). In oligopolistic markets, there is price rigidity because setting product price is not at one firm discretion but a decision in which all firms are factored in. If one firm lowers price below market price, this can cause a price war where all firms start lowering their prices to match the initial decrease and this will continue and form a vicious downward price spiral. However, if one firm raises its price above set market price, no other firm will raise its price to match it and the firm who raised prices will lose out as all its customers will shift to competitor firms who have the old, lower price (Bhaskar, 2007). Thus, in an oligopolistic market, prices mostly remain rigid and are not often seen increasing or decreasing as the prices in a perfectly competitive market that respond to the dynamic demand and supply levels. 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. (Sen, 2004). This is shown in the diagram below:
...Download file to see next pagesRead More
Cite this document
(“Why are Oligopolies Tempted to Collude Even if it Means Breaking the Essay”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1454822-why-are-oligopolies-tempted-to-collude-even-if-it
(Why Are Oligopolies Tempted to Collude Even If It Means Breaking the Essay)
“Why Are Oligopolies Tempted to Collude Even If It Means Breaking the Essay”, n.d. https://studentshare.org/macro-microeconomics/1454822-why-are-oligopolies-tempted-to-collude-even-if-it.
This is a discussion on competitive markets, monopolies, as well as oligopolies as types of markets structures. Oligopoly market structure is, arguably, the most beneficial to the economy. Due to the availability of enough resources and competition between the players, it becomes necessary to invent and innovate.
220). Their dominance is evident through their control over prices of the goods or services they provide and the barriers that they set to make it difficult for new firms to join their industry. This “fewness” results to firms be mutually interdependent because each has to consider the possible reactions of its competitors to its price, marketing and product innovations or development.
Though there may be other operating systems available, non are comparable to the system that consumers have become dependent on. The ability of Microsoft to dictate not only price, but also the products that are introduced, indeed make it a monopoly.
Other manufacturers have attempted to enter into competition with Microsoft by the introduction of competing operating systems and may have success on the edges of the market.
I knew right away that he wasn’t what he seemed. I’ve been in the business a long time, and you can’t out-bluff a bluffer. So when he sent me a drink, and then sauntered over with his little cocktail in his hand, I was already on high alert.
Alright, I’ve bowled
Conversely, bad news with efficient nursing communicative skills to older people is undeniably lacking. There is what they call ageism insisting a principle of ignoring older people because they are not productive and
nt for what is previously considered new or a novelty, and many other ways that require events professionals to re-consider traditional methods of planning, organizing, marketing and executing their events.
This paper shall prepare an event plan for a fundraiser for a
The social rule I had broken here was that I had worn the underwear over my pants rather than underneath them. I expected people to burst into laughter to see me. I would not be surprised if some boys started hooting to see me walk past them, or if they called me names. I expected people to point fingers at me.
I wanted to know how people celebrate weddings in that culture; how much they usually spend on weddings, and where do there draw a line between necessity and overspending. Most importantly, I wanted to draw my own conclusions about the social psychology of people
At the center of the investigation was is whether the Google company uses its market position as the monopoly search engine company over the years to muscle out healthy competition from various specialized search services, particularly comparison
4 Pages(1000 words)Coursework
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Why are Oligopolies Tempted to Collude Even if it Means Breaking the Law for FREE!