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Agreeing with other industry members what price to charge is known as collusion. Collusion is defined as “Action in concert without any formal agreement… [it] is common when anti-monopoly legislation makes explicit agreements illegal or unenforceable. Its existence is [sometimes] extremely difficult to prove” Black et al (2012). Within this analysis, I will explain what collusion is, the different types, why firms may enter into this agreement, then outline a past example and finally explain why this silent or spoken agreement may break down. Collusive agreements or cartels may however be created by governments to protect and positively influence markets, examples of this are the US sugar manufacturing cartel (operating between 1934-74) and OPEC which is still in operation today. Collusive behaviour exists only within an Oligopoly market structure as a result of the extreme mutual interdependency of firms. Some examples of markets where oligopolies may be found are the Tobacco industry, soft drinks and gas distribution. Parkin et al (2008). An oligopoly is defined as “a few sellers [that] dominate the market… [it] might have dozens or even hundreds of individual firms but most of them are unimportant in the industry; a small number of them…dominate the industry.” California State University Department of Economics. (2014) there are two unique characteristics within oligopoly not witnessed in any other market structure; they are mutual interdependence and repeated interaction. Others include a “high concentration ratio, either a homogenous or differentiated product or both high and low barriers to entry” Dawson, Chris (2013). “Mutual interdependence exists when the actions of one firm [have] a major impact on the other firms in ... ... middle of paper ... ...that this was the sole reason for this collusive agreement to break down. Conclusion In conclusion, the temptation for a firm to enter into a cartel or collusive agreement may not only be to fuel rising profits and sales. Some organisations may enter into these agreements not with the sole intention of boosting profits, this is clearly seen through the creation of OPEC which aids both consumers and producers development and stability. However seen above by the BA and Virgin Atlantic scandal this is the most common use for this agreement. The negative side of these types of agreements that are purely selfish and only help the producer are clear to see. Furthermore, the reason is clear as to why this agreement broke down, as the key component to any agreement is trusts and this is what Virgin broke, there was no foreseeable way this collusive agreement to continue.
Such as the case of two major players in the entertainment community of Sirius and XM who both have a majority of the marketplace in the satellite radio business and their talks of consolidating both businesses into one. This article on Ars Technica (Lasar, 2008) expands on the idea that these corporate entities should not be allowed to merge into one corporation, but above that should also be fined for even considering the idea in back rooms and locked boardrooms. Using the model case of the Sherman Anti-Trust act in Standard Oil, the corporation floated around having anywhere between eighty five percent and ninety five percent. With those numbers, XM and Sirius would fall into the numerical category of filling that condition of a monopoly.
To differentiate monopolies from trusts, it must be said that single companies were able to form monopolies when in control of “nearly all of one type of product or service… [This] affects the consu...
Best Buy operates in an oligopolistic market where there are significant barriers to entry and few large firms dominate the market by selling identical goods. Best Buy is a non-collusive oligopolist, existing in a strategic environment where firms do not cooperate, yet are interdependent due to the fact that a firm’s action affects the market. Recently, Best Buy experienced an increase in demand, increasing its revenues and profits.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
Based on the integration of a cartel of its type in the diamond market, I see it fit to say that the price of diamonds is set above what is reasonable. This essay will expound the role of the diamond cartel in cinching the high price charged by all those involved in selling diamonds. (Levenstein, Suslow, 2008: Cartel) states that cartels are agreements or associations between or of firms, with the aim of fixing prices and/or limiting output. These can operate in multiple ways, from rigging auctions, to separating their firms far from each other, making it seem as though they are the only supplier of a specific commodity within a certain area and thus limiting supply within their respective area. On average, cartels last just about five years and then end, often as a result of legalities, seeing as cartels are most commonly illegal.
Fog, B. 1956. How are Cartel Prices Determined? The Journal of Industrial Economics. 5(1): 16-23
The essential factor of an oligopolistic firm is interdependence. Oligopoly involves few producers, which means more than one producer as it is in pure monopoly but not so many as in monopolistic competition or pure competition where it is difficult to follow rival firms’ actions. Therefore, due to small number of producers on oligopoly market, the price and output solutions are interdependent. As a result, firms can cooperate or come to an agreement profitable for everyone. Therefore, they can increase, as it is possible, their joint profits (Pleeter & Way, 1990, p.129). Further, oligopoly is divided on pure, which is producing homogeneous products, and differentiated, producing heterogeneous products (Gallaway, 2000). Economists Farris and Happel insist that the more the product is differentiated, the more firms become independent, and the more the product differentiation, “the less likely joint profit maximization exists for the entire group” (1987, p. 263). Consequently, it is worth to be interdependent.
The beer market has turned itself into an oligopoly in the past 100 years. Where there once were hundreds of brewers across America, there now are just a few major players in the industry. But what is an oligopoly? As defined by Ayers & Collinge in the textbook Microeconomics, “an oligopoly is characterized by multiple firms, one or more of which will produce a significant portion of industry output”(microeconomics). Oligopolies exist where a few large firms producing a homogeneous or differentiated product dominate a market. There must be few enough firms so that they are mutually interdependent, which means they must consider rival’s reactions in response to decisions about prices, output, and advertising. The causes of the beer oligopoly are as followed: 1. Economies of scale exist, which indicate that a few large firms would be more efficient that many small ones. 2. A high degree of capital investment required. 3. Other barriers to entry may exist like patents, control of raw materials, large advertising budgets, and traditional brand loyalty.
The Standard Oil case illustrates how a vertical relationship can create horizontal market power. Granitz and Klein argue that in such a case, the vertical relationship should not be the central aspect of concern for antitrust agencies. It was the explicit horizontal conspiracy by the railroads with the help of Standard that jointly fixed rail rates and railroad market shares. “Such horizontal collusive behavior is clearly anticompetitive, and would be anticompetitive even if there were no vertical connection between Standard and the railroads” (Granitz and Klein 1996, p. 45). They conclude their article by stating that their detailed analysis did not support any new antitrust policy that would condemn a vertical relationship in the absence of a horizontal conspiracy.
Philip M. Parker and Lars-Hendrik Röller. (1997). Collusive Conduct in Duopolies: Multimarket Contact and Cross-Ownership in the Mobile Telephone Industry. The RAND Journal of Economics. Vol. 28 (2), pp. 304-322
There are many industries. Economist group them into four market models: 1) pure competition which involves a very large number of firms producing a standardized producer. New firms may enter very easily. 2) Pure monopoly is a market structure in which one firm is the sole seller a product or service like a local electric company. Entry of additional firms is blocked so that one firm is the industry. 3)Monopolistic competition is characterized by a relatively large number of sellers producing differentiated product. 4)Oligopoly involves only a few sellers; this “fewness” means that each firm is affected by the decisions of rival and must take these decisions into account in determining its own price and output. Pure competition assumes that firms and resources are mobile among different kinds of industries.
But also giving importance to legitimacy execute for the organisations with the respect of government rules and regulations which they are bound to do. However , sometimes big business who have huge investments and collaboration on political level leads organisations and collaborators both on risk level (Helm 2007). Because of their high standards and big names they both have to be on attentive on their each actions to protect and save their reputation and image For them they are always playing on risk. Sometime they do succeed and sometime miserably failed and that breakdown is the starting point of risk for them because failed in risk leads to serious crisis (Barton, 2001).
In the short run, oligopolies are. able to earn abnormal profits, but in the long run as well they are. able to sustain abnormal profits due to the barriers to entry and exit. Then the s The barriers act as a strong deterrent to firms that want to come in. the industry and " eat into" the abnormal profits and then exit the market.
The. An oligopoly is a market structure characterised by few firms and many buyers, homogenous or differentiated products and also difficult market entry (Pass et al. 2000) an example of an oligopoly would be the fast food industry where there is a few firms such as McDonalds, Burger King and KFC that all compete for a greater market share. In a Monopoly, there is one firm that controls the market, and there are no similar products being sold by other companies. Advertising is therefore used to encourage people to buy more of their product. In a monopoly there is a downward sloping demand curve, the reason for this is that a firm must lower the price to sell an extra unit of their product.