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Writing Assignment #2 - Essay Example

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This peculiarity arises out of the special characteristic that oligopoly is dominated by few market sellers who trade in similar products. In an increasingly competitive global…
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Writing Assignment #2
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inserts His/her inserts inserts Grade   Oligopoly Markets Oligopolistic market structures are some of the most uncommon in modern economic parlance. This peculiarity arises out of the special characteristic that oligopoly is dominated by few market sellers who trade in similar products. In an increasingly competitive global environment, most industries are characterized by several market players who are always on the chase for the few customers available. The oil industry is a classic example of an oligopolistic market industry that is usually dominated by few oil companies dealing in completely similar products. Products in oligopolistic market structures will usually have very few or no substitutes as in the case of oil. The automobile industry in the world also evidences oligopolistic tendencies with a few large car manufactures selling similar auto models across the world. In most cases, players in such industries are torn between competing separately to win the market and coming together to create a monopolistic situation. Normally, the latter case never works as most companies rebrand constantly to differentiate themselves from their competitors. This is clearly seen in the automobile industry where different auto makers are customizing their brands to suite specific categories of people in the market.
In a duopoly market structure, where the market players are limited to two, the common situation is normally cooperation between them so as to limit output to the monopoly style (Perloff 78). In such a case, profit is maximized as the price becomes much greater than the marginal cost. A case in point lies in the operation of Coca-Cola and Pepsi cola which operate in a duopoly situation. Most duopolies are created out of collusion between two or more players who agree to jointly set the price and manage output. Production in that is usually more than in a monopolist but less than in the in the completive market. In the same vein, some duopolies operate as cartels where strict cooperation is the order of the day.
Price determination in oligopolistic market environments is always the prerogative of the market players. This arises since these players are normally big enough to influence prices in the market unlike in competitive market environments. In any case, prices in such markets are not determined by the interaction of supply and demand but are a function of the cooperation between the competing firms. Such a pricing strategy is known to create myriad inefficiencies in the market as usually evidenced in the oil industry where the need to rake in more profits leads to unnecessary hoarding of oil. Similarly, duopolies are perfect markets in the case of certain situations where perfect competition or monopoly cannot thrive. Proponents of this market situation will realize the imperative of such a market in the increasingly competitive global environment. However, the challenge normally arises where the oligopolistic firms engage in detrimental price wars which eventually eliminate some of them from the market.
Most observers may never notice the differences in operations between an oligopolistic market and a monopoly. Today, most firms operating as duopolies will always create barriers that prevent any prospective entrant from aspiring to join the market. However, dependence among the firms is usually encouraged much to the discredit of the consumers. A striking characteristic that marks most oligopolistic markets is the instability of such markets which arises out of the fight for dominance. Such fights normally create a market dependent on the activities of one player usually the most dominant. However, the recent economic downturn and financial occurrences have helped streamline most of these markets thereby positively affecting the consumers.
Work Cited
Perloff, James. Macroeconomics: A Case in Point. New York: Prentice Hall, 2009. Read More
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