The extent of oligopoly

Length: 6 Pages 1565 Words

Oligopoly Oligopoly is a market structure dominated by a small number Of large firms, selling either identical or differentiated products, and there are significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition. Oligopoly being a general market structure category, dominates the modern economic landscape. About half of the output produced in the world’s economy can be traced to oligopolistic industries. Oligopolistic industries are as diverse as they are widespread. Oligopoly ranges from breakfast cereal to cars, from computers to aircrafts, from television broadcasting to pharmaceuticals, from petroleum to detergent. Because each firm in an oligopolistic industry is relatively large, each has a substantial degree of market control. It's not total control like in a situation of monopoly, but it's significantly greater than that of a monopolistically competitive firm. While monopolistic competition and oligopoly have distinct identifiable characteristics, they really form a continuum on the spectrum of market structures. Any boundary separating oligopoly from monopolistic competition is fuzzy at beast. An Continue...

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All of the firms will be better off if they keep their output down and their prices up. Ford, for example, owns Jaguar, half of Aston Martin, 25 of Mazda, and 10 of Kia. Oligopolies that follow a price leader do not engage in price competition, but they still contest for market share with a variety of forms of non-price competition. Pepsi and Coke each spend billions on TV ads designed to entice the consumer to switch cola brands, but those expensive adds never mention price. The number of firms may be fixed, or it may be free to vary. Over the last few months, Heavy-hitters in industries ranging from autos to aerospace to agriculture have announced such marketplaces, also known as online exchanges. Very few of us could raise the 8 billion or so that it takes to start an automobile firm. Them being, the firms might get together and form a cartel, coordinating their behavior as if they were a single monopoly. More recently, Motorola joined the strategic alliance formed earlier by IBM, Siemans and Toshiba to jointly develop the next generation of memory chips. General Motors and Toyota jointly own and operate an auto plant in California. But there is a fundamental difference. The problem is with their competitors. Firms in the same line of business would enter into a formal - and enforceable - agreement to limit production and thus maintain high prices. In both perfect competition and monopolistic competition the actions of one firm have no affect on other firms. The situation differs from perfect competition because each firm is large enough to have a significant effect on the market price.


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