...OLIGOPOLY, CHARACTERISTICS: The three most important characteristics of oligopoly are: (1) an industry dominated by a small number of large firms, (2) firms sell either identical or differentiated products, and (3) the industry has significant barriers to entry. These three characteristics underlie common oligopolistic behavior, including interdependent actions and decision making, the inclination to keep prices rigid, the pursuit of nonprice competition rather than price competition, the tendency for firms to merge, and the incentive to form collusive arrangements. Small Number of Large Firms The most important characteristic of oligopoly is an industry dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market. This characteristics gives each of the relatively large firms substantial market control. While each firm does not have as much market control as monopoly, it definitely has more than a monopolistically competitive firm. The total number of firms in an oligopolistic industry is not the key consideration. A oligopoly firm actually can have a large number of firms, approaching that of any monopolistically competitive industry. However, the distinguishing feature is that a few of the firms are relatively large compared to the overall market. A given industry with a thousand firms, for example, is considered oligopolistic if the top five firms produce half of the industry's total output. The hypothetical...
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...Week 4 Assignment 2: Polaroid; Monopoly to Oligopoly Managerial Economics and Globalization July 29, 2012 Before the days of digital cameras, Polaroid controlled the film and picture taking industry with the first instant camera. Founded in the late 1930’s, Polaroid was a cultural icon that had the girth and expertise to dominate the industry for many years. Polaroid was well known for its cutting-edge research and cameras that captivated a whole generation (Weisman, 2006). The technological powerhouse developed many products and services that includes but is not limited to sunglasses, scanners, Polarvision and digital cameras but their invention of instant photography monopolized the US by the 1970’s. In this unique market Polaroid was the only seller for instant cameras and also held many patents for their new film developing technology. Because of its innovative and extremely popular products, consumers looked to Polaroid for all their needs. Having been the major provider for instant cameras and handheld video cameras, Polaroid still managed to keep their products in demand and affordable. The company only really had one major competitor, Kodak, which many years later were able to pick up where Polaroid fell short. Kodak tried to enter the instant camera industry with Polaroid but in 1990 a federal judge ruled that Eastman Kodak Company would have to pay Polaroid Corporation $909.5 million dollars for infringing on seven of Polaroid’s twelve instant photography patents...
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...Differences in the Market Structures In economics there are four main market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. Each of these market structures faces the common factor of competition. Various degrees of competition are what separate these market structures. Secondly, the commodity or product plays a huge role in these market structures because some products have substitutes or identical products. Lastly, we will observe the barriers to which a firms face when entering or exiting the market. This is a very important factor in the market structures because relative difficulty in entry and exit of the markets will determine what type of market structure we are examining. Market structures are based on two extremes known as perfect competition and monopoly. Oligopolies lie in the middle of this spectrum. A comparison and contrast of each market structure in short term and long term scenarios will be detailed in the following paper. Perfect competition and Monopoly In a Perfect competition there are four conditions that characterize the perfect competition structure: a large number of buyers & sellers, free entry & exit, product homogeneity, and perfect information. Each of these aspects is compared when examining the differences between monopoly and perfect competition. First in perfect competition there are a large number of small firms. Perfectly competitive firms’ demand curves are perfectly elastic while a monopoly’s...
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...What is a monopoly? A monopoly is an enterprise that is the only seller of a good service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. (Stigler, 2013) What is an Oligopoly? Oligopoly is an industry can only have a handful of large firms; it makes it very difficult for new firms to enter into the industry. The firm products can be similar or different, but the action of one firm will impact others in the oligopoly. (Wessels, 2000) What is a Cartel? A Cartel is a group of firms in an oligopoly that get together and agree to cooperate to the detriment of consumers and other firms. The benefit of cooperation is that the oligopolists can charge higher prices to consumer end up with less than they otherwise might have consumed. (Wessels, 2000) Example of a Monopoly: Examples of monopolies includes Microsoft and Windows, DeBeers and diamond, your local natural gas company. Individual restaurants and other products that enjoy brand loyalty in otherwise competitive markets will choose prices and output just like monopolists do. (Monopoly) Phone companies are an example of the breakup of a firm with monopoly power. AT&T was forced to break into a number of local phone companies back in 1982, with several regional operating companies such as bell south etc. Today, AT&T and Verizon control most of the...
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...Comparison among the monopoly and oligopoly Competition in the market. A monopoly market contains a single firm that produces goods with no close substitute, with significant barriers to entry of other firms. An A monopoly and an oligopoly are economic market structures where there is imperfect oligopoly market has a small number of relatively large firms that produce similar but slightly different products. Again, there are significant barriers to entry for other enterprises. In a monopoly, the seller charges high prices for the goods because there is no competition. In an oligopoly, the prices are moderate due to the presence of competition. However, they are higher than they would be in perfect competition. Barriers to entry in a monopoly market are high due to technology, high capital requirement, government regulation, patents and high distribution overheads. In an oligopoly market, the barriers to entry are high due to the economies of scale. A monopoly draws power from the fact that it is the only viable seller of the product in the industry. However, in an oligopoly, firms can influence the market by setting their prices, marketing strategies and customer service. In oligopoly, firms may collude rather than compete. The cooperation makes them operate as though they were one firm. This changes the market structure from being an oligopoly to a monopoly. There must be some measure of competition in an oligopoly market structure. The geographical size of the market...
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...of production is perfect in the long run in this market. Being price takers, to achieve the aim of profit maximisation, firms produce a level of output where price equals marginal cost (MC) of producing an extra unit of product. Profit is maximised where marginal revenue (MR) is equal to MC because price is also the MR for competitive firms. Monopoly is the opposite of perfect competition due to a single firm owns and serves the entire market because there is no competition available. There is “only one provider of a good or service, great barriers to entry for seller, no barriers to entry for buyer” (Econ Guru, 2006). This often then leads to high prices and mediocre products being sold, however very unique. Monopolies are price makers because they control the market and their prices are set higher than MC where it is equal to MR in order to achieve commercial profits. Economies of scale is also a source for a monopoly firm as they have more efficient cost of production than larger firms hence a natural monopoly can arise like gas and electricity companies in the UK. Governments however try to control the actions of monopolies such as imposing price controls to protect groups that...
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...Week Three Student Guide In the third week, you will learn about the four market structures—pure or perfect competition; monopoly, monopolistic competition, and oligopoly—and the implications of the market structures for competitive strategies and profit maximization. You will participate in discussions that compare various market structures and their characteristics, evaluate the effectiveness of competitive strategies in market structures, and determine profit-maximizing strategies based on a market structure analysis. The topics incorporate Week One material related to market outcomes and prices & Week Two concepts, which focused on productivity and costs. This week includes activities that lead you to identify the market structure firms compete in and the factors that lead to these determinations. They also allow you to evaluate the effect of market structure on profit maximization in the short and long run. You will learn how to use graphs and charts of profit maximization in each structure. You learn how the market structure positively and negatively affects a firm and how the effectiveness of the competitive strategies in the structure affects the organization’s long-term profitability. Critical to this understanding is the fundamental concept that a firm maximizes profits where marginal revenues equal marginal costs. The ability to focus on the marketplace, an organization’s cost structure, and market structure on competitive strategies and profit maximization will...
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...market, monopolies, and oligopolies) influences the market price and the economy. However, on the surface, competitive market, monopolies, and oligopolies market structures may appear different; they all share a common goal. That goal is to maximize profits. The first of the three market structures I will discuss is the competitive market structure. Mankiw (2007) defines a competitive market structure as “a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker (Mankiw, 2007).” Therefore, in a competitive market, the buyers and sellers do not set the price for a product brought or sold, but the product’s market price determines the price of a product brought or sold. Since there are many buyers and sellers in a competitive market, with many of the firms selling the same or similar products, the firms do not have room to play around with the price of their products, because their competition would then take away their customer by pricing the same or similar product for a cheaper price. According to Mankiw (2007), three characteristics make up the workings of a competitive market structure, or a perfectly competitive market. The three characteristics of a competitive market, discussed by Mankiw (2007) are “[1] there are many buyers and many sellers in the market. [2] The goods offered by the various sellers are largely the same. [3] Firms can freely enter or exit the market (Mankiw, 2007).” However, the monopoly market structure...
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...of this paper is to discuss the difference between a monopoly, an oligopoly, and a cartel along with examples of each. It will discuss the welfare effects of monopolies and oligopolies. It will discuss how game theory explains the relations of firms within oligopolies and cartels and the financial purpose of OPEC and the past five years of the oil prices. Economics for the Global Manager The Organization of Petroleum Exporting Countries, or OPEC, economic structure and future actions are predicated on a contract from an economic firm. The difference between a monopoly, an oligopoly, and a cartel are simple and examples of each will be given. The welfare effects of monopolies and oligopolies will be discussed. Game theory explains the relations of firms within oligopolies and cartels. The economic purpose of OPEC and what has happened to oil prices over the past five year will be discussed. Differences /Examples One seller of a good or service which has no close substitute and has substantial control over the price and protection from rivalry through a barrier to entry is a monopoly. An industry that has moderately diminutive number of firms, barriers to access, price searching behavior and mutual interdependence is an oligopoly. A cartel has an arrangement between participating firms to allow coordination of their output and pricing decision to earn monopoly profits (Gregory, 2004). One single example of a monopoly is the U.S. Postal Service, or USPS. There are no close...
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...Market Structures Adam Timothy Rider ECO204: Principles of Microeconomics Evelyn Carlson 10/13/2014 When trying to gain insight into the local economy it is very important to understand the big picture of how the various market structures relate to each other. This can be accomplished by putting together some of the smaller pieces or characteristic of the market structure. These characteristics can be organizational, competitive or a variety of other features that categorize a firm as a specific market structure. Individual market structures can be described as the amount of firms producing identical goods and services. If you can identify the market structure you can often identify how they firms within the structure are going to price their products in the industry. The market structure will have an effect on the supply and demand of the different commodities in the market. The market structure will also influence barriers for entry and exit in the industry. In order to understand these structures in an economic community you must obtain an understanding of how they all work together to form the economic community. By the end of this report you will possess the necessary knowledge to understand the market structures in the micro economy. Before we begin to the inevitable breakdown of the individual market structures it is important to identify some of the key features of market structure in general. First it would be important to look at the...
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...SUMMARY OF REPORT I. Introduction to Four Market Structure II. Comparative Characteristics of Four Market Structures III. Four Market Structures a. Pure Competition i. Characteristics ii. Demand Curve iii. Examples iv. Summary b. Pure Monopoly v. Characteristics vi. Demand Curve vii. Examples viii. Summary c. Oligopoly ix. Characteristics x. Demand Curve xi. Examples xii. Summary d. Monopolistic Competition xiii. Characteristics xiv. Demand Curve xv. Examples xvi. Summary FOUR MARKET STRUCTURES Market structure is the selling environment in which a firm produces and sells its product The preceding chapter on the theory of production and cost made us understand the behavior of producer towards an efficient use of productive inputs because the use of inputs is associated with economic cost be it explicit or implicit cost. Efficient use of resources means proper identification of the use of the land, labor, capital and entrepreneur. These should not be underused as in 1st stage production or overused as in the 3rd stage of production, so that the cost associated to the production level can be minimized. This chapter examines a broad range of markets and explains how the pricing and output decisions of firms depend on market structure and the behavior of competitors. To determine...
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...particular market; along with the ways in which the companies within these markets are alike or different and the barriers to entry that exist for these given market. The level of rivalry or competition also plays a powerful role in what kind of structure emerges in a given market. This paper will focus on competitive markets, monopolies, and oligopolies by detailing the distinctions between them such as how is price and output is determined to maximize profit, analyzing their barriers to entry: and what role each market structure plays in the economy. Price control is different in each market structure and is essential to know for maximizing profits. A company ability to control the price of its goods and services is called price management. Businesses that operate in a perfect competition market structure have no control over the price of their goods and services. Companies that have the ability to control the price of the products or services are companies that have the benefit of operating under a market structure called monopoly. Organizations that run under an oligopoly enjoy the same control over price as monopolistic competition or monopoly market structure. The reason why prefect competition does not enable a business to have control over its prices is because in this kind of market structure, there are many business selling similar products and services, with few differences. If one business want to raise its price, that business would lose customers because there...
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...Running head: Oligopoly Theory The Oligopoly Theory OPERATIONS MANAGEMENT Table of Contents Abstract…………………………………………………………………………………………3 Introduction…………………………………………………………………………………….4 Oligopolistic Competition……………………………………………………………………...5 Characteristics of an Oligopoly…..………………………………….………………………....6 Models of Oligopoly Behavior…………………………………………………………………9 Conclusion….………..………………………………………………………………………...11 References……………………………………………………………………………………..12 Abstract The goal of this research paper is to provide an overview of the theory of oligopoly and its effect on the global economic stage. We will review what results when there are fewer companies in a particular marketplace. We will also review the various barriers commonplace to oligopolies. Finally, we will address the various theories of oligopoly and their application in the global economy. Introduction There are four basic kinds of market constructs; monopoly perfect competition, oligopoly, and monopolistic competition. This paper will review the market structure known as oligopoly. The term oligopoly can be defined as a type of market structure that has a small number of participants that offer a particular product or service within the marketplace (Salvatore, 2007). The etymology of the word oligopoly is cryptic except for its initial appearance in 1518 in...
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...Market Structures ECO 204 Principles of Microeconomics Instructor: Christine Villasenor August 26th, 2013 Market Structures Every business throughout the business world will run their company in one of the four business structures. I am going to show the different examples of the different market structures of perfect competition, pure monopoly, monopolistic competition and oligopoly. Perfect competition is a big number of firms all making a familiar product that not one producer can affect the change in price. “If changes in nominal aggregate demand do not affect real output and employment, a financial crisis cannot be very important. However, the neutrality result does not really apply in the real world, either in the short or long runs.”(Ng, Y. 2009) An example of pure competition would be farms that produce common vegetables that we buy at the grocery store. There are so many farmers that produce fruits and vegetables that if one of them were to try to affect the market by lowering or raising prices, it would not really affect the prices of the rest of the market. But if a large portion of farmers where to work together about raising or lowering prices, we would see it affect the market more. “In reality, perfect competition is more theory than actual fact. While there are rare situations in which a marketplace functions with pure competition for a short period of time, the situation normally shifts as various factors change the stalemate created by...
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...following is true under monopoly? A. Profits are always positive B. P > MC C. P = MR D. All of the above are true for monopoly Answer: B 2. In a competitive industry with identical firms, long run equilibrium is characterized by A. P = AC B. P = MC C. MR = MC D. All of the statements associated with this question are correct Answer: D 3. Which of the following is true? A. A monopolist produces on the inelastic portion of its demand B. A monopolist always earns an economic profit C. The more inelastic the demand, the closer marginal revenue is to price D. In the short run a monopoly will shutdown if P < AVC Answer: D 4. Which of the following is true under monopoly? A. Profits are always positive B. P > minimum of ATC C. P = MR D. None of the statements associated with this question are correct Answer: B 5. In the long-run, monopolistically competitive firms: A. Charge prices equal to marginal cost B. Have excess capacity C. Produce at the minimum of average total cost D. Have excess capacity and produce at the minimum of average total cost Answer: B 6. If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits the firm will A. Reduce output and increase price B. Increase output and decrease price C. Increase both output and price D. Reduce both output and price Answer: 7. Which of the following market structures would you expect to yield the greatest product variety? A. Monopoly B. Monopolistic...
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