Welcome to the Oligopoly WikiEdit
Wiki on Oligopoly. By Clifton Wong, Ken Loh and Lim Zhi Kai. IDE Firms and Enterprise 2011.
What is Oligopoly?Edit
Oligopoly is basically the domination of the market by a few firms. Oligopoly is a situation whereby a particular market is controlled by a small but dominant group of firms. Oligopoly is very similar to monopoly, in which only one company or a few exert control over a large majority of the market. Because of the small number of companies in an oligopoly market, companies are likely to be well aware of the actions of other companies. This also brings about companies having great influence on one another. The decisions of one firm influence, and are influenced by, the decisions of other firms. There are several terms in Oligopoly which greatly influence the study of Oligopoly in economics.
Key Features of an OligopolyEdit
- A few firms selling similar products.
- Each firm produces branded products (advertisement).
- Firms have perfect knowledge of their own expenditure
- Likely to be significant entry barriers into the market in the long run which allows firms to make supernormal profits.
- Interdependence between competing firms (prices). Businesses have to take into account likely reactions of rivals to any change in price and output.
There are four major theories about oligopoly pricing:
(1) Oligopoly firms collaborate to charge the monopoly price and get monopoly profit.
(2) Oligopoly firms compete on price so that price and profits will be the same as a competitive industry.
(3) Oligopoly price and profits will be between the monopoly and competitive ends of the scale.
(4) Oligopoly prices and profits are "indeterminate" (not certain) because of the difficulties in modelling interdependent price and output decisions.
Market Trends of an OligopolyEdit
There are several phenomena and market trends within an oligopoly market structure. This includes cartels ,Sticky prices and these can be observed from the Supply and demand curves of an Oligopoly.
Sticky Prices means that prices of products in an Oligopoly do not fluctuate that much. If a company increases it's product's price, the other rival companies will not follow suit. However, there is no incentive to increase prices.
If a company decreases it's product's price, the other rival companies will follow suit as they do not want to lose out. It can be seen in the red-line in the graph. It means that as the prices of one company's product drops, the other companies will immediately drop as well. Decreasing prices will only result in a lose-lose situation as each company will still have the same market shares in the market. They only earn less profit.
However, as there is no incentive to increase or decrease profit, the prices in an Oligopoly is usually the same. Thus called Sticky Prices.
Examples of OligopolyEdit
▪ Most media outlets are owned either by News Corporation, Times Warner or by Fairfax Media.
▪ Grocery retailing is dominated by Coles Group and Woolsworth.
▪ Three companies (Rogers Wireless, Bell Mobility and Telus) share over 94% of Canada's wireless market.
▪ Five banks dominate the UK banking sector, they were accused of being an oligopoly by the relative newcomer Virgin bank.
▪ Four companies (Tesco, Sainsbury's, Asda and Morrisons) share 74.4% of the grocery market.
▪ The detergent market is dominated by two players, Unilever and Procter & Gamble. United States
▪ Many media industries today are essentially oligopolies.
▪ Six movie studios receive 90% of American film revenues.
▪ The television industry is mostly an oligopoly of seven companies: The Walt Disney Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News Corporation.
▪ Healthcare insurance in the United States consists of very few insurance companies controlling major market share in most states. For example, California's insured population of 20 million is the most competitive in the nation and 44% of that market is dominated by two insurance companies, Anthem and Kaiser Permenante.
▪ Anheuser-Busch and MillerCoors control about 80% of the beer industry.
- The telecommunications industry is dominated by Singtel, StarHub and M1
- The public transport industry is controlled by SBS and SMRT as well as various cab firms (Prima cabs, Comfort Cabs, City Cab, ComfortDelgro etc)
Business Strategies: http://factoidz.com/singtel-businesslevel-strategy/
Telecommunication investments: http://www.investmentmoats.com/money-management/dividend-investing/a-guide-dividend-investing-in-singapore-telecom-stocks/
StarHub Market Strategies::http://nedstark.wordpress.com/2007/06/14/starhubs-red-herrings/
Porter 5 forces (Business strategy)http://tutor2u.net/business/strategy/porter_five_forces.htm