IGCSE+Oligopoly

OLIGOPOLY

An oligopoly is defined as a market dominated by a few producers: each of which has some control over the market. Examples of oligopolies include:


 * Confectioneries ||
 * · Petrol retailing ||
 * · Washing powder market ||
 * · banks ||
 * · Mobile Telecommunications ||


The concentration ratio is one measure of the extent to which a market or industry is dominated by a few leading firms. Normally an oligopoly exists when the top five firms in the market account more than 60% of total market demand/sales for. In the example below we look at the market share of mobile phone manufacturers



http://media.economist.com/sites/default/files/imagecache/original-size/20110212_WOC149.gif

the 7 largest firms have approximately 80% Market share. This would be classified as an Oligopoly.

Another example maybe retail banking in China Equally ISPs are a rapidly changing market. Microsoft IE used to have a near monopoly but now the market is becoming more competitive. Use this excellent resource to undertake some research on this.[|http://timetric.com/dataset/netmarketshare/]

Worked Example:



<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Measure the 5 firm CR for these two industries. What does this tell us? <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Features of an Oligopoly **

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">There is no single theory of how firms determine price and output under conditions of oligopoly, but the industry is likely to exhibit the following features: > <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Firms have to take into account likely reactions of rivals to any change in price. This interdependence creates a lot of uncertainty as firms also have to take into account the behaviour of other firms. Sometimes this leads to competition but sometimes it leads to **collusion**
 * **<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">interdependence **
 * **<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Significant barriers to entry (including economies of scale) **
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">**Prices do not change often**. Firms do not want to lower prices as they are afraid of price wars. They may find it difficult to raise prices as rivals may keep their prices constant and so take customers from them.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;"> **non-price competition:** <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">as firms are reluctant to compete on prices they compete by advertising and branding