7 8 Price setting, competition, and the market Microeconomics

The concentration ratio measures the market share of the largest firms. There exists severe competition among different firms and each firm try to manipulate both prices and volume of production to outsmart each other. For example, the market for automobiles in India is an oligopolist structure as there are only few producers of automobiles. If the firms produce homogeneous products, then it is called pure or perfect oligopoly.

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Markets with differentiated products reflect differences in the preferences of consumers. Consumers of mineral water may be attracted by combinations of characteristics including taste, mineral content, and bottle design, or they may be concerned about environmental impact. Figure 7.21 shows prices for mineral water in Singapore in 2019, according to a price comparison website. A monopoly occurs when a single firm dominates an entire market without any close substitutes or competitors.

Hence, by understanding the type of market they operate in, businesses can tailor their pricing strategies accordingly. Oligopolies in history include steel manufacturers, oil companies, railroads, tire manufacturing, grocery store chains, and wireless carriers. The economic and legal concern is that an oligopoly can block new entrants, slow innovation, and increase prices, all of which harm consumers.

The Oligopoly Market: Example, Types and Features Micro Economics

Markets serve as a platform for the exchange of goods and services between buyers and sellers. The interaction between these two parties drives economic activity and plays a crucial role in determining market performance. Monopsony is a market structure where there is only one buyer for a particular product or service, giving them the power to control prices and dictate terms oligopoly examples in india to suppliers. An example of monopsony in the real world would be when a large company is the only buyer of a certain product from suppliers.

Customers don’t have alternatives that they could use instead, which requires them to make a purchase from one of the companies in the oligopoly. Because there is no dominant force in the industry, companies may be tempted to collude with one another rather than compete, which keeps non-established players from entering the market. This cooperation makes them operate as though they were a single company. While not a single-company-dominated monopoly, oligopolies erect significant barriers to entry, effectively keeping out new upstarts from becoming competitors. While these companies are still technically considered competitors within their particular market, they also tend to cooperate or coordinate with each other to benefit the group as a whole.

The market is dominated by a few major players such as Airtel, Vi, and Reliance Jio. These companies have significant control over pricing and decisions within the industry, leading to intense competition and limited choices for consumers. One of the main reasons why OPEC is considered an oligopoly is because it has no overarching authority. Every member nation within the group also has a substantial portion of the group’s market share.

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India is one of the fastest growing major economies, with a rising power, but has under penetrated aviation market. IndiGo has a 61.4% market share, according to the latest data from the Directorate General of Civil Aviation (DGCA). The combined share of Air Airlines under the Air India umbrella — Air India, Vistara, AirAsia India, and Air India Express stands for 26.3%. These two companies are agreesivly increasing thier capacity from the current fleet strength of 312 for IndiGo and 238 for the Air India Group. All these numbers points to a Duopoly other airlines either lack a strong promoter group or do not have the means to scale up thier fleet size.

Acqua Panna is more expensive than the others, and Volvic much cheaper, but each one is able to attract consumers. One of the main benefits of having an oligopoly is that competition is very limited. Since there are few competitors, an oligopoly allows those who participate to net a higher amount of profits. Let’s explore the main types and get a better understanding of each one. If firms in an oligopoly market compete with each other, it is called a non-collusive or non-cooperative oligopoly. The next single carrier that flies the largest share of passengers, Alaska Airlines, flies just over 6% of all domestic passengers in the United States.

What Are the Characteristics of an Oligopolistic Industry?

1. As discussed above, in competitive markets with a large number of buyers and sellers, prices tend to be driven down due to intense competition.
2. Hollywood has long been an oligopoly, with a select few movie studios, film distribution companies, and movie theater chains to choose from.
3. So we would expect higher markups for products with fewer close substitutes.
4. Let’s explore the main types and get a better understanding of each one.

Cournot’s work influenced other nineteenth-century economists, such as Marshall and Walras, and established the basic principles we still use to understand the behaviour of firms. Although we use diagrams rather than algebra, our analysis of demand and profit maximization is very similar to his. Conversely, in fragmented markets with many small players, competition tends to be higher. Analyzing industry concentration levels provides insights into market dynamics and competitiveness. Note that perfect competition is a hypothetical situation that cannot possibly exist in a market. However, perfect competition is used as a base to compare with other forms of market structure.

1. In India, markets for automobiles, cement, steel, aluminium, etc, are the examples of oligopolistic market.
2. Currently, engine and aircraft delivery have been hit by supply chain issues.
3. If conditions are right, companies in the oligopoly will come to realize that they are best served individually not by competing tooth-and-nail.
4. Merger agreements between major players have resulted in industry consolidation.

With significant market power, monopolies may exploit their position to maximize profits, resulting in market inefficiencies and decreased welfare for consumers. Understanding market structure is essential for analyzing consumer behavior patterns. Different types of markets shape consumer preferences and purchasing decisions differently.

A monopoly is a market with only one producer, a duopoly has two firms, and an oligopoly consists of two or more firms. Due to severe competition ‘and interdependence of the firms, various sales promotion techniques are used to promote sales of the product. Advertisement is in full swing under oligopoly, and many a times advertisement can become a matter of life-and-death. The main reason for few firms under oligopoly is the barriers, which prevent entry of new firms into the industry.

Producers of differentiated products enjoy market power, but how much depends on how we define the market in which they are operating. The elasticity of its demand curve gives us an overall measure of the extent of competition from firms in all of these markets, and determines its power to set its own price above marginal cost. The pricing mechanism helps ensure the efficient allocation of resources within an entire market. This leads to lower prices for consumers and encourages businesses to innovate and improve their products. Perfect competition is characterized by numerous buyers and sellers, homogeneous products, free entry and exit of firms, perfect information, and no market power.

In India, the state-owned company Indian Railways is an example of a monopoly. It is the only provider of rail transportation in the country, with no close substitutes or competitors. As a result, Indian Railways has complete control over pricing and supply, which can sometimes lead to issues for consumers. Under oligopoly, the exact behaviour pattern of a producer cannot be determined with certainty.