Advantages of oligopoly. Oligopoly Market 2022-10-27
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An oligopoly is a market structure in which a few firms dominate the industry and control a large portion of the market share. While monopolies and monopolistic competition both have their own advantages and disadvantages, oligopolies have a unique set of advantages that make them attractive to firms operating in certain industries.
One of the main advantages of oligopoly is that it allows firms to engage in price collusion. In an oligopoly, firms have a high degree of control over the market, which allows them to coordinate their pricing strategies and agree on a common price for their products or services. This can lead to higher profits for the firms, as they are able to charge higher prices without fear of competition.
Another advantage of oligopoly is that it allows for economies of scale. In an oligopoly, the few dominant firms are able to produce goods at a lower cost due to their large scale of production. This allows them to offer their products at a lower price, which can make them more competitive in the market.
Oligopolies also tend to have higher barriers to entry, which can deter new firms from entering the market and competing with the existing firms. This can lead to a more stable market and less frequent price changes, which can be beneficial to both consumers and firms.
Additionally, oligopolies often engage in non-price competition, such as advertising and product differentiation, in order to differentiate themselves from their competitors and attract customers. This can lead to more choice and variety for consumers, as firms compete to offer the best products and services.
Overall, while oligopolies do have some drawbacks, such as the potential for price collusion and reduced competition, they also offer several advantages that make them attractive to firms operating in certain industries.
Advantages And Disadvantages Of Oligopoly, Sample of Essays
This is different than a monopoly, which is where only one company or business control the entire market. Free from taxes: In LLC there is no need to submit a corporate tax return. Easy profits from collusion can make firms lazy and avoid innovation and efforts to increase productivity. It admits that the price of a firm affects the profit of the other firm. There is, therefore, a good deal of interdependence of the firms under oligopoly. A barometric firm is expected to understand the market and set prices based on demand, cost of production, competition and so on.
It can lead to decision-making bias and irrational behavior. You will see dozens of different brands and variations available on the shelf. The advantages and disadvantages of this market form can be clearly demarcated. What are the pros and cons of an oligopoly? However, big companies like Amazon, eBay and Provide Commerce have developed a business branding and strategy that allows them to offer quality service, competitive prices, and fast shipping. What is advantage and disadvantage of monopoly? India has a limited number of automobile and cold drink producers. Trustee, as well does not fit the situation as it is expensive to maintain the trust and most importantly it is more complex and sophisticated to set up than any other business structure. The extra profit can direct toward research and development projects, which ultimately help their consumers to experience the quality.
There is no need for them to try to make their products or services cheaper because they consumers must purchase them if they have a need. A small number of sellers represents an essential portion of the total industrial output created by every company and are likely to influence market conditions significantly. Proprietors report their profit share and loss through their individual tax returns. What is a collusion in economics? Collusion is said to take place when firms work in tandem to reduce market uncertainty. List of the Cons of an Oligopoly 1.
Such competition usually manifests as secret discounts, additional facilities or other secret benefits to retailers or consumers. That is the kinked demand. What is oligopoly market? By limiting the purchases through OPEC for these necessary fossil fuels, less wealth transfers to the companies and countries who took advantage of this structure in the past. It can still offer competitive pricing. The consumers have very limited choices and options for the services that they want.
However, if people had no choice where to buy their car, it would not matter what a company sold. There is less of a need to directly compete with new and unknown firms, so there are fewer expenses to worry about. When there is an oligopoly present, then the companies know that customers have no choice but to work with them to have their needs met. The major characteristics that economist have focused on in describing the market structures are the nature of competition and the mode of pricing in that market. The firms under oligopolistic market employ aggressive and defensive weapons to gain a greater share in the market and to maximize sale. Importance of Advertising and Selling Costs Interdependence between Oligopolists shows the direct influence on different firms to use marketing tools which are both offensive and defensive, to achieve more significant market share or keep their current market share. That is because older businesses have no permission to expand their percentage in the marketplace.
What is Oligopoly? Market, Concept and Characteristics
Decisions made by one entrepreneur will affect others most of the time. This leads to a decline in consumer surplus and allocative inefficiency Price pushed up above marginal cost New firms can be discouraged from entering the market by types of collusion which act as a barrier to entry. But on the other side, competitors can easily compare prices which there will be pressure for the firms. The disadvantages of oligopoly: 1 It is impossible for the small companies to enter this market because the huge firms completely control the whole market. Oligopoly market form exists in the television and media industry, health care insurance industry, and cellular phone service industry of the United Sates.
An oligopoly can adopt a competitive strategy. For customers, oligopoly is advantageous because they can easily make price comparisons among the few players existing in the market. . Under oligopoly with product differentiation, each firm controls a large part of the market by producing differentiated product. We often see this advantage when looking at the outcomes presented by the pharmaceutical industry as the higher cost of medication helps to fuel new research into drugs that could help to reduce the impact of disease. The second characteristic is that monopolistic firms are relatively small, which can result in either new firms to enter the industry or firms that are existing to exit the market. They tend to make competition through their prices.
Each company scrambles to come out with latest and greatest thing in order to sway consumers to go with their company over a different one. An oligopoly market is a market structure type in which less number of firms have the entire market control. Under perfect competition there are a lot of buyers and sellers in the market competing with each other. It also prevents new players from entering the market through several barriers of entry. No firm can fail to take into account the reaction of other firms to its price and output policies.
No firm can predict the consequence of its price-output policy. The Risk of Collusion. Rigid price The fear of losing market share when price is raised and not gaining much share when price is lowered causes oligopolies to stick to the initial price, resulting in the price becoming sticky or rigid. Many of the new oligopoly markets are medical and that is just about the worst thing for patients who will experience limited choice, higher prices and less crop diversity. What does collusion mean in a competitive framework? The advantages help to promote innovation and choice, while the disadvantages can force a lack of spending in the local economy. List of the Disadvantages of an Oligopoly 1.