Among them is whether the oligopoly intentional or has competition with other suppliers, e. A price reduction may achieve strategic benefits, such as gaining market share, or deterring entry, but the danger is that rivals will simply reduce their prices in response.
Advertising Advertising is another sunk cost - the more that is spent by incumbent firms the greater the deterrent to new entrants.
Therefore demand is inelastic for a price cut.
The highest barrier that one may encounter is governmental laws, and indeed it was often intentionally employed to create monopolies. The consumers prefer lower prices while the suppliers prefer higher prices. Several factors are apparent; the number of firms in the market is small, their size is relatively big, their products are slightly differentiated, and the entry barriers are high.
These hurdles are called barriers to entry and the incumbent can erect them deliberately, or they can exploit natural barriers that exist. If the index is belowthe market is not considered concentrated, while an index above indicates a highly concentrated market or industry — the higher the figure the greater the concentration.
A supermarket is visibly a large scale business -meaning that it requires a big amount of capital to start. Sales promotion, such as buy-one-get-one-free BOGOFis associated with the large supermarkets, which is a highly oligopolistic market, dominated by three or four large chains.
The demand curve is relatively inelastic in this context. How expensive is it to introduce the strategy? I believe that it is only logical for them to attempt making the overall competition more endurable by forming a segregated oligopoly.
However, there is a risk with such a rigid pricing strategy as rivals could adopt a more flexible discounting strategy to gain market share. Even when MC moves out of the vertical portion, the effect on price is minimal, and consumers will not gain the benefit of any cost reduction.
The disadvantages of oligopolies Oligopolies can be criticised on a number of obvious grounds, including: If firms do collude, and their behaviour can be proven to result in reduced competition, they are likely to be subject to regulation.
I decided to investigate whether the strain caused by the over supply have hanged a particular part of the market structure of the supermarkets of Bog. Predatory pricing Predatory pricing occurs when a firm deliberately tries to push prices low enough to force rivals out of the market. For example, if a petrol retailer like Texaco wishes to increase its market share by reducing price, it must take into account the possibility that close rivals, such as Shell and BP, may reduce their price in retaliation.
Oligopolists may be allocatively and productively inefficient. Description of British Supermarkets The largest retail sector and the most important market in the UK economy is the grocery retailing.
Furthermore, the products offered by a supermarket are numerous in variety. Now for further analysis the growth of three British supermarkets — Tesco, Asda and Sainsburys from 10th December, to 3rd November, is taken into consideration in figure 2. Barriers to entry Oligopolies and monopolies frequently maintain their position of dominance in a market might because it is too costly or difficult for potential rivals to enter the market.
Collusion is illegal and firms can be fined. Then the analysis about the tacit collusion in oligopoly market will be taken into the consideration. Among the very basic principles taught to economics students is the Market Equilibrium law. The objectives of the firms; e. In an oligopoly, there must be some barriers to entry to enable firms to gain a significant market share.
The super-normal profits they generate may be used to innovate, in which case the consumer may gain. Examples of oligopolies Car industry — economies of scale have cause mergers so big multinationals dominate the market.
The key players in were: This leads to little or no gain, but can lead to falling revenues and profits. Assumptions of an Oligopoly An oligopoly is a market situation where there are few sellers and each firm may be aware of the activities of another.
An Over Supply occurs when the quantity of supply exceeds the quantity of demand.An oligopoly is an industry dominated by a few large firms. For example, an industry with a five-firm concentration ratio of greater than 50% is considered a monopoly.
supermarkets often compete on the price of some goods (bread/special offers) but set high prices for other goods, such as luxury cake.
Collusion. but tacit collusion may. A formal collision is called a cartel, and the original supermarkets of Bog do not belong to a formal cartel. An unofficial collusion is referred to as a tacit oligopoly. (Galilee, ) The colluding firms will have an agreement about price range, advertising, market share, and possibly corporate business strategies.
Oligopoly Defining and measuring oligopoly. An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it.
Food grocery is widely discussed as an example of a competitive oligopoly. The chart below shows the changing market share for the major grocers over recent years. The dominance of Tesco as the leading retailer in the UK has been challenged.
In part this comes from the rapid growth of deep. Price leadership is a kind of oligopoly in which one leading supermarket puts prices and all the minor supermarkets in the industry go behind its pricing policy.
The price-leadership model outcome is the quantity demanded in the industry is split amongst the main firm and the group of minor firms Griffiths and Wall ().
Extended Essay in Economics Tacit Oligopoly of the Original Supermarkets of Bogor Written By IB Diploma Candidate #: Session Word Count: 0 %(1).Download