HOW WOULD A YEA SAYER RESPOND TO THIS DISCUSSION POST? ****NO PLAGIARISM PLEASE*
ID: 1204636 • Letter: H
Question
HOW WOULD A YEA SAYER RESPOND TO THIS DISCUSSION POST? ****NO PLAGIARISM PLEASE**************
For my post I picked Oligopoly, Oligopoly is market power based on product differentiation and firm’s dominance. In an Oligopoly market, there is product differentiation, products are similar but small innovations make them unique from competitor’s products. They also have a strong barrier to entry which makes it difficult for new firms to enter the Market. In an Oligopoly market, one firm’s actions will influence another firm's actions and market conditions. Oligopoly is usually the most common structure in today's markets. Oligopolists compete against each other by using various ways to make their product stand out, for example, advertising and sales promotion and new product launches, because this maintains and intensifies the ability to earn money price cuts are easily matched when on the other hand product differentiation is more difficult to match. Oligopoly does not compete on prices because price wars usually lead to lower profits in the market which in return leaves a little change to market shares. Oligopolists are usually drawn in two different directions, to either compete or collude. If they collude, then they begin to act as a monopoly in which they maximize the industry's profits. Because they have the want to gain a bigger share of the profit of the industry some are often tempted to compete.
Explanation / Answer
Oligopoly is that market structure that is portrayed by very few firms and these firms in turn, decides the terms of the market. Being interdependent, the pricing and output decisions are taken strategically. An oligopoly can, more than often, be arisen on the account of possible three barriers to entry: Economies of scale, Legal restrictions, and Brand names.
Based on this behavior, we have:
Cournot oligopoly sells homogenous products at almost same price to a large number of consumers. They believe that rival firms will keep their output level unchanged
Stackelberg model of oligopoly involves a leader succeeded by its followers. The leader decides how much to produce and the followers cater the remaining market
Bertrand oligopoly has competition arises on the account of price setting when firms in the market compete for price.
There is a special case that leads to price wars: In case when rival firms match a price cut so as to prevent sales (and profits) from falling but do not match a price rise, the Sweezy model of oligopoly assumes that the market operates at a kink. The kinked demand curve so formed comprises of upper portion of the demand curve (till the point of kink) and lower portion of the demand curve (from the point of kink).
So far so good. But the fact that Oligopoly does not compete on prices because price wars usually lead to lower profits in the market which in return leaves a little change to market shares, is misinterpreted. As mentioned, the Sweezy model is less practical since oligopolistic firms do face some advantages of economies of scale on the account of brand names, cost advantages that enables them to engage in price wars.
Oligopolists are usually drawn in two different directions, to either compete or collude, and the fact is true. When they collude, then they begin to act as a monopoly in which they maximize the industry's profits, but when several firms collude, there is chance of cheat and hence, the startegies of punish the cheater are applied.
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