Oligopolistic Markets

Management Economics Assignment 2 Q1. Is an oligopolistic commercialize structure an manakin of commercialize failure? Explain you answer. To understand if an oligopolistic market structure is an example of market failure, we first need to understand oligopolistic markets. An oligopolistic market is one in which the market is dominated by a small number of large firms. Oligopoly exists in several markets much(prenominal) as the cola industry, petroleum, breakfast cereals etc. In these markets, the activities of these firms be interdependent. They make do that e genuinelything they do will affect the market and their competitors. For example, if Pepsi starts a major advertising campaign, we can be sure that coca Cola will adopt suit. Coca Cola know that if they do not advertise, they will probably lose market share to Pepsi. The number of firms in oligopolistic markets can vary from deuce to as many as fifteen and still be considered an oligopolistic market structure. If there are only two firms, accordingly it is a duopoly. These large firms in an oligopolistic market control the market. each(prenominal) firm has a substantial degree of market control. So the action of one firm can influence the actions of the others. This mutuality of firms leads to collusion between the firms.

Collusion is an agreement between firms to position the competition amongst them and to raise the barriers of entry to keep potential competitors out. Without forming these agreements, the firms in an oligopolistic market face a high degree of dubiousness about their rivals reactions. Consider this situation: - If Pepsi reduces the price of a can of Pepsi, then Coke will follow suit and reduce their price as well which in turn might cause Pepsi to reduce prices again leading(p) to a price war with prices leading progressively downwards. This is very bad for business and can lead to firms being light-emitting diode out of business, maybe even the firm that first mulish to lower its prices. So co-ordination between firms can reduce the risk of exposure of a... If you want to get a full essay, order it on our website: Orderessay

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