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Distinguish between market and structure
Implications of oligopoly market structure
Distinguish between market and structure
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Market structure is defined by the number of sellers in the market, the buying and selling strength of these sellers and their ability to affect prices, the characteristics of the competition, the differentiation or otherwise of the products, and ease of entry into, or exit from, the marketplace.
There are four types of market structure:
• Perfect competition;
• Monopolistic competition;
• Oligopoly; and,
• Monopoly.
Perfect competition is characterised thus:
There are many sellers, with no one organisation dominating the market, of identical products, selling at a price that is dictated by the market. There are many buyers in the market who have perfect knowledge of the products and the alternatives available and there is little or no differentiation between different products offered by different sellers.
There are no
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Travelodge, Holiday Inn and Starbucks.
Oligopoly is defined thus:
There are a small number of large organisations dominating the market and each of these firms controls a large part of the market by producing differentiated products.
These organisations must take into account the actions and reactions of their competitors when making business decisions – this is known as collusive oligopoly or collusion. These firms are interdependent and keep prices inelastic – if one organisation was to raise its prices then it would lose customers to its rivals and if it was to lower its prices then its competitors would follow suit so neither strategy would increase revenue. OPEC is one such organisation that restricts the supply of oil to keep the price high.
Entry into the market is prohibitive because of, say, government restrictions, high start-up costs or resource ownership such as in mining or drilling.
Monopoly is defined
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.
Because there are few firms in an oligopoly industry, each firms output is a large share of the market. As a result, each firm's pricing and output decisions have a substantial effect on the profitability of other firms. In addition, when making decisions relating to price or output, each firm has to take into consideration the likely reaction of rival firms. Because of this interdependence, oligopoly firms engage in strategic behaviour. Strategic behaviour means when the best outcome of a firm is determined by the actions of other firms.
It is a well-known fact that every firm wants to be successful in its business. Sometimes it is difficult to decide what kind of actions to take in order to achieve it. Especially, it is hard on oligopoly market because this is one of the most complicated market structures. Oligopoly includes many models and theories such as duopoly where are just two producers and which pricing decisions remind monopoly, kinked demand curve, which decreases economic profit, and cartel, which brings economic profit just for the short-run. However, to be a successful oligopolistic firm in the long run, managers should include in the planning process such economic theories and models as producer interdependence, the prisoner’s dilemma, price leadership, nonprice adjustments, and correct using of barriers to entry.
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).
· The market is dominated by a few large suppliers rather than a fragmented source of supply,
Microsoft is dominating the market for years and it is the company that made its competitors almost unable to survive by offering great pieces of technology at affordable price. Today, it produces 75 percent of world’s PC’s. There are other monopolies that exists as well, for example; Wham-O owns over 90 percent of world’s frisbees. Nobody can compete against Wham-O since they basically control the whole frisbees’ industry. Another enormous monopoly is Google Inc., an international corporation that provides internet-related products and services. The industry includes everything from Android, Google Chrome, to Google Docs. Everyone, either students, or workers uses google every day to check emails, surf the web, type a document, etc. Google has couple competitors today but, because of the variety of products and services it offers, other firms can’t compete with Google.
There were fierce competitions among the producers that have scale and scope of operations which were similar to each other. For instance, the Pepsi Co. and Coca Cola companies have developed the strategy and infrastructure, which are hard for the local sellers to complete with them. However, there were still many producers including new entrants that try to access the market and compete seriously with low price and differentiation- strategies among rival...
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.
Competition law The definition of anti-competitive behaviour which is stated by the OECD is the business practices that an organization choose to restrict inter-organization competition to maintain or increase their market position without providing goods and services at a lower price or of higher standard such that these practices occur in the form of cartels, collusions, conspiracies, mergers, predatory pricing, price discrimination, and price fixing. Therefore, these practices also occur in supplier–distributor relationships. For instance- agreements for exclusive dealing, geographic market restrictions, refusals to deal, resale price maintenance, and tied selling. Anti-competitive agreements made in one country can impose an impact on other
However, in each market certain businesses do have varying amounts of market power, businesses with greatly differentiated merchandise have approximate monopoly power (What is market,
In conclusion, market structure is important because it leads to strategic decision making. Having a working knowledge of market structure impacts decision making because organizations will learn the characteristics of their competition and how the market will response to changes. This report discussed the four different types of market structures: monopoly, oligopoly, monopolistic competition, and pure competition. It went into detail about what each market structure was and gave every day examples of them. Additionally, it will outlined the type of market structure AutoEdge fits into, how that market structure impacts the level of competition, elasticity of demand, price, and position in the industry.
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.
If competitors offer equally attractive products and services, then one will most likely have little power in the situation, because suppliers and buyers will...
A market structure are the characteristics of a market that significantly affect the behavior and interaction of buyers and sellers (Cabiya-an, 2014). This essay will describe the 4 market structures; perfect competition, monopolistic competition, oligopoly and monopoly. I will compare and contrast the market structures in relation to benefits and costs to the consumer and producer.
The interrelated characteristics of a market, such as the relative strength & number of buyers and sellers, degree of collusion among them, competition forms & level, extent of product differentiation, and conditions of entry and exit.