Imagine a horse race where the leader is so far ahead, there is no debate on who is in the lead. Non-collusive oligopoly refers to the market where firms behave independently but in reality, they are interdependent in the industry. Seller’s perception of the other sellers in the market decides their behaviour and decisions.
It is a market structure where the various seller sells homogeneous or differentiated products. An oligopoly is a middle ground between a monopoly and open competition. An oligopoly occurs when a small group of businesses, at least two, control the market for a certain product or service.
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If there are 2 companies, it’s called a duopoly and if there is only one company it’s called a monopoly. A monopoly is a market that contains just 1 company with no other competition. The obvious issue with monopolies is the complete lack of competition and the single company’s potential ability to fix prices, provide poor service, or produce a bad product. Monopolies that do exist often have very strict regulations to prevent consumers from being taken advantage of. Collusive Oligopolies are markets where the select few companies get together and agree to set prices. The colluding companies form a cartel and make competition non-existent.
If the firms produce differentiated products, then it is called differentiated or imperfect oligopoly. The goods produced by different firms have their own distinguishing characteristics, yet all of them are close substitutes of each other. Oligopoly refers to a market situation in which there are a few firms selling homogeneous or differentiated products. Oligopoly is, sometimes, also known as ‘competition among the few’ as there are few sellers in the market and every seller influences and is influenced by the behaviour of other firms. An oligopoly is a market network where there is a limited number of firms in the industry and where every firm is linked with one another.
An oligopoly is different from a monopoly because there is more than one supplier. While competition is limited in an oligopoly, there is still some competition. Coke has brought in a revolution especially in Indian markets with the Rs. 5 pricing strategy which was very famous. It was the first company to introduce the small bottle of Coke for just Re. This campaign was very successful especially with the price conscious Indian consumers. Even today most prices of Coke are decided on the basis of the competition in the market.
What is 1 example of oligopoly?
Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag.
Most households have a single provider for their electricity service, whether it’s government-run or run by a corporation. The aluminium industry has undoubtedly the highest Technical and economic concentration. The top 6 big companies, Alcoa, Kaiser and Reynolds from the US, Alcan from Canada and Pechiney and Alusuisse from Europe, controls the industry in the period of the Second World War to the 1970s. Let us take the media sector in the US, where 5-6 players are capturing almost 90% of this sector. And, the rest 10% share of the market is shared by other small firms.
Oligopoly Market Meaning
When there is limited market, in which a market is shared by a smaller number of producers or sellers. Firms under this are mutually dependent because a few large firms dominate the market. Interdependence means that the actions of 1 firm depend on the action of the other firms.
As the joint profit-maximizing efforts achieve greater economic profits for all participating entities, there is an incentive for an individual entity to «cheat» by expanding output to gain greater market share and profit. In the case of oligopolist cheating, when the incumbent entity discovers this breach in collusion, competitors in the market will retaliate by matching or dropping prices lower than the original drop. Hence, the market share originally gained by having dropped the price will be minimized or eliminated. This is why on the kinked demand curve model the lower segment of the demand curve is inelastic.
Oligopoly Market of Soft Drink
The equilibrium solution would be at the intersection of the two reaction functions. There are many organizations in the oligopoly market, but one of them is oligopoly examples in india the dominant organization, called Price Leader. The word oligopoly is derived from two Greek words – ‘Oligi’ meaning ‘few’ and ‘Polein’ meaning ‘selling’.
Pepsi again decides its price on the basis of competition (rival’s action). The best thing about the company Pepsi is that it is very flexible and it can come down with the price very quickly. Indeed, it is counter-productive, as when prices are reduced in a particular area by one of the cola brands, the second must follow.
These sectoral structures are the starting point for assessing business or economic environments. It provides a deep insight into an industry with important factors like market news, legislation, policy changes and very curiously, how the current state of the economy (market structures) shapes important decisions than vice-versa. Firms try to avoid price competition, otherwise, there will be price wars. They use other methods like advertising, customer care, etc. to stay in the market. It is imperfect because the sizes of the companies are not the same. Moreover, any change in the way an individual company operates will change the market.
- Interdependence means that actions of one firm affect the actions of other firms.
- The market share of firm A and B are the same which means the demand is also the same for both of these firms.
- Firms with high advertisement spending have a higher impact on the consumer, and it creates a negative image for others.High spending on advertisement shows the high and positive impact on consumer and negative on other firms.
- If a company fails to do this and moves ahead along with the market, it may undergo a loss.
Is Nestle a monopoly in India?
There are different monopoly stocks in India, as listed above. According to the market cap, the top three large-cap monopoly stocks in India are ITC, Nestle and Hindustan Zinc.