The UK petroleum industry consists of 3 main retailing ownership models. The 3 models are oil company, independent dealers and supermarkets. The concentration ratio in the petrol retail market has gone through a couple of changes over the past 10 years. Since 2004, the market share of supermarkets has increased by 10%, from 29% to 39%. In the same period, the market shares of oil companies and independent dealers dropped by 8%, from 37% to 29% and 1.6%, from 34% to 32.4% respectively. (UK petrol and diesel sector, 2013: 44-45). Please refer to Appendix A for the graphs. If we look at the market by types of ownership, it seems like oligopoly as 3 types of ownership dominate the industry. However, if we break it down into individual companies, the statistics reflects the opposite. Using the Herfindahl – Hirschman Index where the market share of each firm is squared and added up, we can find the market concentration of the UK petrol retail. (Modern Analyst, 2013)
Please refer to Appendix B for the table and values.
HHI = 16 ² + 15² + 14.1² + 10.4² + 9.7² + 9.4² + 6.1² + 5.4² + 4² + 2.4² + 2.4² + 1.2² + 1.2² + 1.1² + 0.7² + 0.5² + 0.2² + 0.1² + 0.1² + 0.1²
= 1069.21
As the HHI value is between 1000 and 1800. The UK petrol retail market is considered moderately concentrated which indicates that it is more towards monopolistic competition than oligopoly.
Although independent dealers make up 32.4% of the petrol market share, they own 59.9% of the forecourts in the UK. Oil companies and supermarkets own 25.5% and 14.6% of the forecourts in the UK respectively. (UK petrol and diesel sector, 2013: 45). Please refer to Appendix C for the graphs. Even though supermarkets own the least amount of the forecourts, they have the highest marke...
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...han ever. This shows that the petrol retail market sees a reduction in non-competitive behaviour, as the bigger retailers are not cutting the petrol price by a huge amount. There is substantial evidence to prove that the companies’ behaviour fit in with the non-collusive oligopoly: kinked demand curve theory, where prices remain stable with little apparent price competition.
While the market shares of the ownership types suggest that the UK petrol market is more towards monopolistic competition than oligopoly, the manner in which the companies behave indicates otherwise. Although both monopolistic competitive companies and oligopolies engage in non-price completion, the companies are interdependent and there are considerable barriers to entry. In this case, the UK petrol retail market reflects competitive oligopoly as the retailers are competing against each other.
Prior to the year of 1999, Exxon and Mobil were the two largest American oil companies, which were direct descendants of the John D. Rockefeller’s broken up Standard Oil Company. In 1998 Exxon and Mobil signed an eighty billion dollar merger agreement in hope to form Exxon Mobil Corporation, the largest company ever created. Such a merger seems astonishing, not only because it reunited parts of Rockefeller’s Standard Oil Company, but also because it would be extremely difficult for the Federal Trade Commission (FTC) to approve this merger due to its size and importance in the oil market. In fact, it took the FTC an entire year after the merger was proposed to make a decision due to its rigorous analysis in the product and its geographic market, the concentration of the oil market, the potential anticompetitive effects of the merger, the effects towards their growth and labor force, and lastly, the likelihood of entry and the efficiencies that may affect anticompetitive concerns. Although all of these notions are played a role in the analysis of the merger, it is important to remember that the merger’s result efficiencies did outweigh the the anticompetitive risks that were involved, especially since the oil market was headed towards decreasing prices to expand production.
Exxon and Mobil were two big competitors in the oil industry. In the 20th century, Exxon and Mobil operated with relatively low-price, and in low-margin environments. The market in the United States and Europe have grown and matured, allowing them both to grow with great success. The competitiveness has tightened worldwide in the crude oil business. Both companies have continued to advance new technologies, introducing new marketing innovations. They have extend there reach into high-growth markets. The two companies became more efficient, reduced costs, and increased shareholder’s value by there merge.
In the United States, modern car manufacturing has been historically dominated by the American companies including Ford Motor Co., Chrysler Group LLC, and General Motors Co. These three companies, known as the Detroit Three, controlled 95% of the market in the 1950’s and the dominance continued until the beginning of the 21st century. In the 1980’s Japanese auto manufacturers entered the United States, a decade later the Germans, and finally in 2000’s the Koreans. By the end of 2009, the Detroit Three only accounted for 45% of the total U.S. auto market. Another factor that had influence on this was constant fluctuations in gasoline prices and price sensitive consumers. According to the U.S. Department of Energy, gas prices hit record high averaging $3.07 per gallon in May 2007 and kept climbing up to $4.08 in July 2008. As gas prices kept increasing, consumer buying trends have been changing. In 2006 sales for SUVs, pickup trucks, and vans dropped 16%, while the market for compact cars rose by 3%. Unfortunately, the Detroit Three were not prepared for this since their...
Federal Trade Commission. July 2005. Gasoline Price Changes: The Dynamic of Supply, Demand, and Competition. Retrieved from http://www.ftc.gov/opa/2005/07/gaspricefactor.htm.
With these characteristics, there are usually as few as two and as many as ten firms that make up large market shares in any one particular industry. According to the U.S. Energy Information Administration website (eia.gov), a crude oil refinery is identified as a collection of many industrial facilities that turn crude oil into petroleum as finished products. Petroleum and oil are used interchangeably. This paper focuses on the oil industry, limited to crude oil and refineries U.S. based companies, identified as oligopoly in the U.S. market due to their market shares and powers. Dominant Firms
For over 100 years, the automobile industry has relied on gasoline as its main source of fuel. Gasoline is a colorless, highly flammable substance used in internal combustion engines. It is a fossil fuel made from crude oil, a natural gas formed from the remains of ancient plants and animals (Webster‘s Dictionary). Gasoline has positively influenced our way of life by providing convenient, on demand transportation. It has created a global economy that moves people and goods faster and more easily than ever imagined (Povey 12). Although a seemingly perfect substance, it has unprecedented flaws. The tremendous political, environmental, and economic problems resultant from the excessive use of gasoline leads to the conclusion that the automobile industry should not continue to rely on this source of fuel.
Monopoly and oligopoly are two economic market conditions. Both of them are likely to co-exist in our world and they differentiate from each other. In this written paper, I will describe the two market conditions. I will describe the characteristics of each one of them in terms of number of suppliers, product differentiation, advantages and disadvantages and the most challenging types of barriers to entry that exist in both of the market structures.
333-355. Hocking and Waud 1992, Oligopoly and Market Concentration' in Microeconomics 2nd Edition, Harper Educational Publishers, NSW, pp. 315-342. Kathleen Hanser, The Secret Behind High Profits at Low-fare Airlines'. a href="http://www.boeing.com/commercial/news/feature/profit.html">http://www.boeing.com/commercial/news/feature/profit.html/a> [accessed 15 May 2003]
The Australian Broadcasting Corporation’s (ABC) news article titled, “Petrol price soars, more pain at the pump ahead,” discusses the rise in the price of fuel and its effect on Australian motorists. This article also discusses how this rise in the price of fuel occurred, mainly focusing on its effect on consumers (Janda 2014).
Sedgwick, David. "Pricing Power shifts to suppliers." Automotive News (2012): 2. online. 20 May 2014. .
The recent surge in the cost of heating oil, diesel fuel, and gasoline in the United States has had significant impact on many sectors of the U.S. economy, but most importantly it has had quite a devastating affect on the trucking industry. This is important due to the fact that nearly “70% of U.S. communities rely solely on trucking for their supplies” (“ATA” 23). If the government continues it’s trend of non-intervention and refuses to place pressure on OPEC, the prices will continue to soar well over the two-dollar mark, and cause the trucking industry as a whole to shut down bringing the U.S. economy to a grinding halt.
Monopolies have a tendency to be bad for the economy. Granted, there are some that are a necessity of life such as natural and legal monopolies. However, the article I have chosen to review is “America’s Monopolies are Holding Back the Economy (Lynn, 2017)” and the name speaks for itself.
The four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly entails various characteristics that exemplify the level of competition within the market. These distinct features include having a number of sellers, producing a homogeneous or differentiated goods or services, pricing power, a level of competition, barriers to entering or exit the markets, efficiency, and profits. Due to the high profit and revenue some firms face within the various market structure, barriers to entry are put in place to restrict new competitors from entering. Natural, artificial, and governmental barriers play a vital role in firms ability to stay in a market, be productive, efficient, and competitive. Firms reaction to price changes, the government’s ability to create a price, and the influence of international trade on the market structures, are essential factors that economist evaluate the various market structures. Overall, the competition between market structures may not always result in the same outcome, due to the behavior and interaction between consumer’s and buyers, but in the end, both the buyer’s and seller’s are needs are
The above scenario clearly explains that all the names in the above Mergers and regroupings are of major oil giants, which are struggling to reshape their business relation internationally to gain more control and access to the natural gas sector. Despite EU rules on third party access and legal/functional unbundling, new entrants often lack effective access to networks, the operators of which are alleged to favour their own affiliates.
As the supply curve moves in the automobile industry, the equilibrium price and quantity sold will change with this shift. When the automobile manufacturers see this shift in supply, they will then raise their prices and the quantity sold will fall. Car manufacturers will also develop...