The characteristics of an oligopoly market includes few sellers offering homogenous or standardized products, mutually dependent firms and low barriers to entry. There are few examples of oligopolistic industries which is smartphone operating system industry and automobile industry. In this case, smartphone operating system industry such as Andriod OS (Google Inc.) and Iphone Os / iOS (Apple). While for automobile industry, examples include Honda and Perodua. It can only be operated by bigger companies and every companies have different goals to achieve.
Monopolists are able to maximize their profits by selling a quantity of their good where marginal costs is equal to marginal revenue, but set a price where this equilibrium meets the demand curve. However, a monopolist isn't desirable for consumers as they create a deadweight loss. (Shown below) The third type of market structure is an oligopoly. This type of market can be seen as being imperfect (where as a monopoly and competitive markets can be seen as being perfect). There are only a few sellers who dominate this type of market, all of which sell similar goods- an example being supermarkets, which are dominated by Tesco, Sainsburys and ASDA.
These products hence cannot substitute each other. In the monopolistic competition, the firm ignores their prices impact on the other firm's product prices while taking the charged price by the rivals just like it's given. In a coercive government, a monopolistic competition falls under a government granted monopoly. In this case, the firm maintains spare capacity. Examples of monopolistic competition include clothing's, shoes, cereals and restaurants and all the service industries in the different
However, in many market, there are either only a small number of buyer or smaller number of supplier. Market failure is likely to exist in a market where competition is not perfect. In a market economy, firms may come to dominate and have monopoly power which can lead to higher prices and lower level of output leading to a loss in welfare. This also leads to allocative and productive inefficiency (Anderton 2008). A market should be competitive because if a firm is dominant, the firm will be able to put prices to a level that is above marginal cost.
State of limited competition, in which a market is shared by a small number of producers or sellers. Meaning the market only has a handful of companies functioning in the same structure. The substitution of a product for another product or one vehicle for another it is completely possible in an Oligopoly market only from one of the few companies in the Oligopoly market structure. In the United States these companies would include Ford, GM, and Chrysler (Grunert n.d.). It is extremely difficult for any new Company wanting to enter into an Oligopoly market structure.
In this market structure there are many buyers and sellers in the industry. The characteristics of many sellers give the monopolistic completion its competitive nature. When there are many sellers in the market they do not take into account the reactions of the rivals. It indicates that the industry concentration ratio is below the required standards. Consumers believe that there is product differentiation.
If there are perfect mutual substitution products of different vendors we say that it is a pure oligopoly, and if the mutual substitution of their products is imperfect, it is a differentiated oligopoly (Perloff, 2012). Oligopolists can noticeably affect the market, but in doing so he is compelled to take into account the reaction of the masses of customers and on the reaction of its competitors. Oligopolies usually occur in heavy industry, in the production of steel, mineral resources, oil, cars, aircraft, computers and other products. Companies that produce a significant portion of output often become major players because they can produce more efficiently than small businesses and use the effects of economies of scale. Since each firm in an oligopolistic market has a relatively
Competition delivers better outcomes than monopolistic ones and even in the cases where the competition policy provides some monopolistic rights at the same time it provides safeguards to ensure that those rights will not be used abusively. The UK Government it its White Paper Productivity and Enterprise: A world Class Competition Regime stated that “Vigorous competition between firms is the lifeblood of strong and effective markets. Competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organization of production”
The red line is supply curve or marginal cost curve. The black line is the marginal cost curve that the firm or industry with the negative externality faces. Q’ is the optimal production quantity. Q* is the negative externality that is the result in the production. Can I try to explain the graph : - From the first point is the point where the slope of MB is the slope of the cost curve Private marginal at that point, the equilibrium of perfect competition, the price level P competitive quantity and quantity Q.
Other than this, firms with monopolistic features have the tendency to produce low quality output because of absence of competition. Existence of natural monopolies cannot be avoided because of the high cost of some products/services needed for the market such as utilities, natural gas and electric companies. In order to avoid this continuous problem of abuse, the government may intervene to control monopolistic firms. The government can set price ceilings to important commodities or utilities like electricity. This is true with government-owned corporations wherein the price ceiling will equal to the average total cost earning only a normal profit (Welker,