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Market structure: business economics
Duopoly market structure
Duopoly market structure
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Introduction
Since the early 1990s, the Jamaican banking sector has experienced significant structural changes stemming from a disorderly financial liberalization process, which preceded a severely disruptive financial crisis. As such, the last decade has important lessons about factors influencing the relationship between competition and concentration, which has been unexplored. Over the last few months commercial banks have been under fire for their high-loan interest rates and wide spread between their fixed deposits savings accounts and lending rates.
Commercial banks within Jamaica operated under an Oligopoly market structure because there are not many commercial banks and the decision of one affects all the others. The banks use non-price competition to compete against each other not necessarily with price but mainly through promotional strategies.
Jamaica's Banking Sector
Jamaica's approximate 2.5 million bank customers enjoy the benefits of strong competition in a deregulated banking system. The dilemma is that we only get benefits from non-price competition while the real benefits of lower lending rates and higher deposit rates are nothing but a fleecing illusion to be pursued but never attained. Jamaica commenced moving from a regulated banking system to a more open competitive sector in the 1990s. While competition has affected many areas of the banking industry, there are two areas that illustrate this change more than others: marketing promotions and product choice. This competition however, has not brought about significant savings for customers due to the Oligopoly market conditions that exists, thus a much narrower choice of commercial banks are now available to the Jamaicans.
In an Oligopoly industry, there are only a few firms between them share a large proportion of the industry. Unlike firms under Monopolistic competition, there are various barriers to the entry of new firms, the size of the barriers, however, will vary from industry to industry. Because of the small numbers of firms under oligopoly, each firm will have to take account of the others action, they are interdependent. This means that each firm is affected by its rivals' actions. If one firm changes its product price or alters another part of its marketing strategy, it will have significantly impact in the rival firms. In other words, if one bank lowers its lending rate, the other banks in this industry will be affected, and they most likely will lower their rate, too. If this happens, neither company will gain a competitive advantage. Therefore, no bank can afford to ignore the actions and reactions of other banks in the industry.
The World Bank. The Road to Sustained Growth in Jamaica. Washington, DC: The International Bank for Reconstruction and Development / The World Bank, 2004. Print
middle of paper ... ... 113-117. 429-477. Gans, King and Mankiw 1999, Oligopoly' in Principles of Microeconomics, eds. Janette Whelan, Harcourt Brace & Company, Australia, pp.
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.
In the Beverage Industry Coca-Cola owns approximately 42% of the Industry where as Pepsi Co. owns approximately 30%. Since 1886, Coca-Cola has been present in the market where as Pepsi Co. entered the market 13 years later. Oligopolies perpetuate themselves and discourage new investments in several ways. One example is having access to key resources, whether it’s natural resources or patented process or special knowledge. This creates difficulty for new firms to enter the industry without access to those resources. In addition with experience of keeping cost low, oligopolies benefit significantly in cost advantages which discourages new firms from entering. An example of this would be a new firm attempting to attract new consumers with a new product rather than an established product. With having an established product oligopolies are able to obtain lower prices from supplies thus allowing them to create predatory pricing aimed at driving smaller competitors out of business. Since they are the two dominant market holders in the Beverage Industry they acquire most of the sales volume. This allows the companies to reduce prices on their products to discourage new firms to continue as they will have to follow the trend. In contrast they increase prices to remain in the market and protect their industry from the expansion or interest of other
An oligopoly is a market consisting of a few large interdependent firms who are usually always trying to second-guess each other's behaviour. There is a high degree of interdependence between each firm in the industry meaning individual firms must take into account the effects of their actions on their rivals, and the course of action that will follow as a result on behalf of the rival firm which will also have consequences. The market as we will see is also allocatively inefficient as price is above marginal cost. There are barriers to entry and exit in an oligopoly meaning that potential new firms will have huge costs if they try to enter the industry and sometimes firms collude in order to prevent new firms from becoming any threat. For example if a new firm tries to enter the industry the cartel can quite easily reduce its prices in the short run so as to remove the new firm. An example of a heavy barrier to entry for new firms is the cost of National or even International advertising. As a result of the firms being interdependent, there are various varieties of collusion in oligopolies to try and create some stable space for the firms to operate in. There are three kinds of collusion:
There are many economic principles that impact credit unions’ ability to compete in the financial services industry. The focus of this paper will be on the market in which credit unions operate, the impact this market has on the credit unions’ ability to differentiate their products and or services in terms of pricing or features, and the barriers credit unions face in their market that impact a credit union’s ability to grow and remain profitable in their market. The Market Structure Market structure is classified according to the degree of competition firms encounter in their industry (Baker College, 2016). There are four main market structures: pure competition, monopolistic competition, oligopoly and a pure monopoly. Pure competition is where firms encounter the highest degree of competition.
A Report on NatWest Bank and an Analysis of the Banking Industry 1. Introduction This report focuses on NatWest and the industry in which it operates. The purpose of the report is to give a concise but accurate view of how NatWest operates as an organisation and the links between its environment, in this case the banking industry. Company History =
The early decades of the nineteenth century saw the establishment of banks in the Caribbean largely as a convenience for the local governments. Throughout much of the nineteenth century, most Caribbean banks operated as an oligopoly with limited government influence – this directly translated into higher profits. However, over time, the banking environment could best be described as complex and dynamic. Competition increased, resulting into greater need for improved customer service, product innovation and cost reduction strategies. In order to achieve this, the banking sector was undergoing major structural reforms characterized by mergers and acquisitions. On July 23, 2001 Barclays and CIBC announced that they were in advanced discussions which were intended to lead to the combination of their retail, corporate and offshore banking operations in the Caribbean.
By doing so, the organization can understand its competitive environment and create a strategic plan to succeed. Within an industry there may be several competitors that provide similar products and services. Within the financial services industry, competitors or Wells Fargo & Co. would be other banking institutions such as JPMorgan Chase and Bank of America. Because Wells Fargo offers a wide variety of products and services, its competitors may also include specialized firms such as Scottrade, e-Trade, Quicken Loans, and Loan Depot which specialize in specific products such as investment banking and mortgage products. Rivalry among these competitors is a positive factor for the consumer because each organization will focus on the activities of its competitors to provide superior service to its
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.
The bank failure in Jamaica illustrates how negative mindsets and behaviors can devastate the financial system and disrupt economic growth. The primary role of any bank is to safeguard its customer’s money, offer interest rate on deposits, lend money to creditworthy individuals, and make sound investment decisions to maximize shareholder value. Because of rapid economic growth between the late 1980s and early 1990s in Jamaica, the Central National Bank (CNB) and Worker’s Savings and Loans Bank (WSLB) loosened their monetary policies, provided preferential interest rates and extended credit beyond what was reasonable to members of its own board of directors, managing directors, and officers of the bank. These actions posed significant risks to the bank and its future.
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
By analyzing how the banks conduct their traditional function, there rises a question of why the borrowers and lenders do not choose direct deal with each other? Which leads to the consideration of the theoretical rational for the existence of banks. This analysis is presented in section 3, which have an intensive expatiation in the theories. In section 4, what are the problems if the direct deals between the borrowers and lenders happen, and how can banks solve those problems are presented therefore answer the question why individuals are willing to pay the intermediation costs.
Banks sector is playing an important role in economies. The banking industry, as the classic and the most influential of financial intermediaries, facilitates economic operations. Financial sector in the worldwide country has been changes over these years by looking the changes of financial structure environment and economic conditions. Thus, banks are a very important point to financial system and play an important role as control and contribute growth to the economic sector.
Never have I ever climbed a mountain peak. As a child, I imagined myself conducting expeditions in deep-frozen pathways, leading amateur explorers to the top of the world, and instructing rookies in surviving harsh blizzards. Even though slightly altered, my childhood dream has been achieved. I led a team of fellow classmates, in my Strategic Management course, to the success summit of a financial competition. Over the course of a semester, I and my teammates were supposed to create and manage a company of the IT industry, in a computer-simulated environment, along with other four rival teams. I dealt with strategy and financial matters of our virtual enterprise, while my colleagues were working on marketing and manufacturing. During the four months of the exercise, I have experienced finance from various aspects: capital budgeting, through selecting favorable investment for upcoming quarters; debt management, by assessing the necessary amount and efficiency of loans; profitability analysis and dividend policy, which had been used to compile the company’s general performance index. Working in a multinational team, which included an American, a Norwegian and a Moldovan, strengthen my negotiations skills, as well as flexibility and cooperation. But above all, this experience intensified my passion for finance. Of course, a pleasant bonus was the fact that, in the end, our company’s financial performance was six times the performance of second-best team.