Collusive Oligopoly - 3372 Words

1.0 Introduction In a perfectly competitive market it is assumed that owing to presence of manybuyers and many sellers selling homogeneous products,the actions of any singlebuyer or seller has a negligible impact on the market price of product. However in reality this situation is seldom realized. Most of the time individual sellershave some degree of control over the price of their outputs. This condition is referredas imperfect competition. Barriers to entry are the factors that make it difficult for new firms to enter an industry, which lead to imperfect competition. Mostly commonly known barriers of entry areeconomies of scale, legal restrictions, high cost of entry and advertising and productdifferentiation. Imperfect†¦show more content†¦For any one firm, within the cartel, expanding output and selling at a price thatslightly undercuts the cartel price can achieve extra profits. Unfortunately if one firmindulges in this, the other firms will probably same path same. If all firms break theterms of their cartel agreement, the result will be an excess supply in the market and asharp fall in the price. Under these circumstances, a cartel agreement might breakdown. Fig.1 Price fixation by cartel and effect on partner of the firm 3.0 Conditions conducive for formation of cartels 1. Only a small number of firms exist in the industry and barriers prevail to entryprotect the monopoly power of existing firms in the long run. 2. Market demand is not too variable i.e. it is reasonably predictable and not subject toerratic fluctuations which may result to excess demand or excess supply. 3. Demand is fairly inelastic with respect to price so that a higher cartel price fetchesincreased total revenue to suppliers in the market. 4. It is easier to monitor each firm’s output. This enables the cartel more easily toregulate total supply and identify firms, cheating on output quotas. 4.0 Reasons for possible breakdowns of cartels Most cartel arrangements experience difficulties and tensions and some producercartels collapse completely. Several factors can create problems within a collusiveagreementShow MoreRelatedOligopoly Essays895 Words   |  4 PagesOligopoly is a market structure in which only a few sellers offer similar or identical products. It is an intermediate form of imperfect competition. OPEC is an epitome of Oligopoly. Features of Oligopoly: †¢ Non Price Competition †¢ Interdependent decision making †¢ Entry Barriers If organizations behave in cooperative mode to mitigate the competitions amongst themselves it is called Collusion. When two or more organizations agree to set their outputs or prices to maintain monopoly it is calledRead MoreMarket Structure of Petrol Companies952 Words   |  4 Pagesstructure of an oligopoly. An oligopoly is a market structure where there are a few dominant firms whose behavior is interdependent. There are a few dominant firms relative to market size, and they each command a large proportion of the market share, thus having strong monopoly power. Examples of petrol companies include Shell, Caltex and Exxon Mobil. Their demand curve is downward sloping, meaning that they are price setters. Petrol is a homogeneous product, hence the oligopoly is known to beRead MoreOligopoly: Monopoly and Demand Curve1451 Words   |  6 PagesAn oligopoly describes a market situation in which there are limited or few sellers. Each seller knows that the other seller or sellers will react to its changes in prices and also quantities. This can cause a type of chain reaction in a market situation. In the world market there are oligopolies in steel production, automobiles, semi-conductor manufacturing, cigarettes, cereals, and also in telecommunications. Often times oligopolistic industries supply a similar or identical product. TheseRead MoreThe Theories Of Market Structure2791 Words   |  12 Pagesis defined as the particular environment of a firm, the characteristics of which influence the firm’s pricing and output decisions. There are four theories of market structure. These theories are: - Pure competition - Monopolistic competition - Oligopoly - Monopoly Each of these theories produces some type of consumer behavior if the firm raises the price or if it reduces the price. Perfect Competition The model of perfect competition gives a description of a market situation that is defined by:Read MoreMarket Structure Of The Uk Supermarket Sector1527 Words   |  7 Pageswith regards to the competition – either their presence or absence. There are different types of market structures: perfect competition, monopolistic competition, oligopoly and monopoly. The characteristics of the product or service and the number of suppliers determine the market structure. This report will mainly focus on oligopoly market structure. What is perfect competition? In perfect competition market structure there are no barriers to entry into or exit out of the industry and companiesRead MoreOligopoly: Monopoly and Firms1535 Words   |  7 Pagesï » ¿+ http://www.expertsmind.com/course-help/?p=oligopoly-emergence-causes-98734287402 Oligopoly Meaning:- Oligopoly  is a common economic system in today’s society. The word â€Å"oligopoly† comes from the Greek â€Å"oligos† meaning little or small† and â€Å"polein† meaning â€Å"to sell.† When â€Å"oligos† is used in the plural, it means â€Å"few.† Oligopoly is a market structure in which there are a few sellers and they sell almost identical products. A situation in which a particular marketRead MoreDifferentiating Between Market Structures Of Wal Mart1498 Words   |  6 Pagescorporations in that they are an oligopoly (Brown, 2010). According to Colander (2010), â€Å"An oligopoly is a market structure in which there are only a few firms and these firms explicitly take other firms’ likely response into account when making decisions.† Furthermore, given that Oligopolistic firms are few, they are interdependent of each other and can either be collusive or no collusive. It is this interdependence amongst the firms that distinguish them as an oligopoly vice a competitive monopoly.Read MoreThe Uk Supermarket Industry : An Oligopolistic Industry1582 Words   |  7 PagesFixed Costs, as a way to characterise the supermarket industry as a natural oligopoly which is sustained by escalations in quality and fixed investment. Ellickson (2007) proposes a model of Cournot competition where firms are vertically differentiated, d iffering only in level of quality, a representation of â€Å"brandwidth or variety provided in each of their stores† (p. 46). Ellickson’s solution determines a natural oligopoly with a finite maximum number of entrants. The model also details the mechanismRead MoreQuestions On Asian Grocery Stores1484 Words   |  6 Pagesthe three grocery stores in the region of Chinatown, which will ideally match with the assumption of the market of being oligopolistic. For secondary research, the theory of market structure will be introduced. Specifically, the market theory of oligopoly and monopoly will be explained because the central assumption is that the grocery stores are operating in an oligopolistic market. Table of Content ABSTRACT INTRODUCTION HYPOTHESIS METHODOLOGY SECONDARYRead MoreOligopoly Versus Monopoly Competition Essay1475 Words   |  6 Pagesiii. Module Title : Economics in an International Context iv. Assessment Title : Essay v. Assignment Title : Differences between oligopoly and monopolistic competition market structures. vi. Tutor name : Hind Francesca vii. Student ID : 200893206 viii. Date of submission : 15/3/2012 ix. Word Count : 986 Differences Between Oligopoly and Monopolistic Competition Market Structures Market structure refers to the interconnected characteristics of a market, which include