oligopoly economics essay
1) Oligopoly can be when a particular market is managed by a select few of organizations. For example grocery stores, there are 3 (there usually exist 3 companies) companies which control the market, Wong and Metro, Santa Isabel and Plaza Vea, and Tottus. The primary assumptions that economists help to make when speaking about a situation of Oligopoly are various; 3 to 4 large companies dominate the industry, nevertheless small corporations do exist (smaller companies inside the recent example would be such as “Arakaki, a sole dealer company); companies are interdependent, al is going to watch the particular competitors do and act accordingly (when Wong came up with the “Bonus greeting card, it would not even handed a week when Santa Isabel created the “MÃ¡s MÃ¡s card); the existence of the kinked require curve (which we will see what it is on query b);
there are barriers to entry, what this means is it is difficult for other firms to enter the industry; not price competition, as corporations cannot remain competitive by prices, therefore they need to compete with the service they provide (for model the “Bonus and the “MÃ¡s MÃ¡s cards); the oligopoly must be collusive (collusion), what this means is when the firms, which control, work together to keep very high prices at the price of the customer (for case Umbro and Adidas, sell off football shirts at high prices, as being a Manchester United shirt costs approximately $50), companies which will work together to keep up high prices should be fined, as it is illegitimate.
Advertising is additionally essential to maintain a high earnings and market share, and also anything very important, which is to develop company loyalty (for example, once I began to buy “Sony electro domestics, I begin to have a brand loyalty, as I under no circumstances had a sole problem with them).
2) The causes of price balance (when rates are secure, without any change) existing in times of Oligopoly are two. The initial reason is because of the gradation of the Demand curve (AR). Adding an example of gas stations, if perhaps there are 3 companies in this market (Shell, Texaco and Mobil), and if one company, for example cover, decides to increase its rates, no other company will follow, and its product sales will decrease by a lot (there will probably be no bonus for corporations to increase rates as consumers have others to buy gas from, it is therefore elastic since there has been a small change in cost but a big change in demand).
A company will likely not reduced its rates because other companies in the industry will do similar (as
people will go to wherever prices will be lower), and there will be hardly any benefits, likewise profits is going to decrease, since sales maximize by simply a small amount (there has been a big change in selling price but a tiny change in demand, therefore inelastic). Firms is going to leave the price unchanged, plus the firms will need to use additional objects to compete with the other person, this includes product differentiation through advertising and innovation. The retail price elasticity of demand looks at the responsiveness of QD to a enhancements made on price.
It is advisable for businesses to for that reason use the same price and find other ways of increasing their product sales, for example to use non cost competition to be able to increase product sales. “The option concludes that there is a determinant and stable price-quantity equilibrium that varies according to the volume of sellers. In essence each firm makes presumptions about their rival’s result. Adjustment or perhaps reaction comes after reaction right up until each company successfully guesses the correct result of its rivals.
The second reason of selling price stability in Oligopoly is, if a organization maximises it is profits wherever MC=MR, and so the point wherever this two curves cross will give us the price plus the quantity the corporation should offer. The minor revenue shape is certainly not continuous, mainly because it has a very big space in this, this is referred to as the “Region of Indeterminacy, and the MC curve may pass through virtually any part of this region, this gap in the MR curve, allows MC to vary devoid of affecting possibly final price or perhaps quantity. To get prices to change, costs would need to rise above MC.