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(3) High set up costs- new enter cannot join due to sunk costs that the firm can incur. (4) High research and development costs- oligopolies spend a lot of money in R& D since they have large financial reserves. Barriers of exit are the aspect of the industry that can make a firm reluctant to leave a certain industry while the firm earns diminishing returns. The causes of barriers of exit include long-term obligations and non-financial objectives. To solve the problem in an airline industry the firm can adopt new capital and cost structures.
An oligopoly market structure has few firms that dominate. Major airlines such as British Airways (BA) and Air France operate on routes that have few competitors. The two major airlines Air France and British airways have small airlines that cater for people on holiday and specialist services. Oligopolies have concentration ratios that measure the proportion of the total market share in a number of firms. Oligopolies have few rivals while they are independent and cannot make decisions in isolation. Monopoly entails a single supplier with a controlling share of more than 25 percent. The formation of monopolies in the market is due to an exclusive ownership to scarce resources, patents on an idea, sound, image, or design on own material. The attributes of monopolies include maintenance of super normal profit that depends on the degree of competition and no close substitutes. Monopolies benefit from economies of scale since they avoid redundant infrastructure. A domestic monopoly is dominant to own territory that can enable it to penetrate the international
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Fig. 2. Shift of demand In Fig. 2, we see a new demand curve that is a result of substitute of soya milk. Here we see that the original demand for milk is DA, and a shift to substitute milk leads to a new demand curve which is DB. This means that the demand for milk will be reduced.
This essay puts emphasis on monopoly power. The impacts the monopoly power can have on the consumers and the impacts it can have on the operation of the markets are the topic of analysis. A market structure that does not satisfy the assumptions of perfect competition is regarded as the market of imperfect competition.
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a) Products’ physical differentiation: where size, design,
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In the IS-MR-PC Model
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