Examine the oligopoly in detail (Imperfect Market). Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.
Examine the oligopoly in detail (Imperfect Market)
INTRODUCTION
- The oligopoly is a type of imperfect market in which only a few large producers dominate the market. 🗸🗸
[Accept any other relevant and correct response]
MAIN PART
Nature of product
- The product may be homogeneous in a pure oligopoly. 🗸🗸
- If the product is differentiated, it is known as a differentiated oligopoly. 🗸🗸
Market information
- There is incomplete information on the product and the prices. 🗸🗸
Market entry
- Market entry is not easy, it is limited in the sense that huge capital outlay might be necessary. 🗸🗸
Control over price
- Oligopolists have considerable control over price, it can influence price, but not as much as the monopolist. 🗸🗸
- Oligopolies can frequently change their prices in order to increase their market share and this result in price wars. 🗸🗸
Mutual dependence
- The decision of one firm will influence and be influenced by the decisions of the other competitors. 🗸🗸
- Mutual dependence (interdependence) exists amongst these businesses.
- A change in the price or change in the market share by one firm is reflected in the sales of the others. 🗸🗸
Non-price competition
- Non – price competition can be through advertising, packaging, after-sales services. 🗸🗸
- Since price competition can result in destructive price wars, oligopolies prefer to compete on a different basis. 🗸🗸
- Participants observe one another carefully- when one oligopolist launches an advertising campaign, its competitors soon follow suite. 🗸🗸
- If oligopolies operate as a cartel, firms have an absolute cost advantage over the rest of the other competitors in the industry. 🗸🗸
Collusion
- Collusion is a strategy used by firms to eliminate competition amongst each other. 🗸🗸
- It can be in a form of overt collusion where firms can work together to form a cartel and tacit collusion where a dominating business controls the price. 🗸🗸
Limited competition
- There are only a few suppliers manufacturing the same product. 🗸🗸
Economic profit
- Oligopolies can make an economic profit over the long term. 🗸🗸
- Abnormal profits may result to joint decision-making in an oligopoly. 🗸🗸
Demand curve
- Slope from left down to the right. 🗸🗸
- It is known as the kinked demand since it contains the upper relatively elastic slope and the lower relatively inelastic slope. 🗸🗸
[Accept any other relevant and correct response]
[Max. 26]
ADDITIONAL PART
Oligopolist may increase their market share using non-price competition strategies by:
- branding their product to create an impression that its product is for a particular age group or income group. 🗸🗸
- aggressive advertising which inform customers about the business or product it provides.🗸🗸
- Using appealing packaging to bring out important features of their product.
- improving their customer service in order to ensure that they return to their businesses.🗸🗸
- providing relevant and precise information, which is crucial to the customers, since there are competitors in the market, customers will patronize the businesses that provides relevant information. 🗸🗸
- extending shopping hours to the convenience of customers.
- Offering loyalty rewards to customers which will encourage their return to spend accumulated rewards. 🗸🗸
[Accept any other relevant response]
[Max.10]
CONCLUSION
- In South Africa, oligopolists have been found to be illegally manipulating prices to their benefit, yet to the detriment of consumers and have been penalized for such action. 🗸🗸
[Accept any other relevant response]