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Oligopoly

An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is very high, firms within an oligopoly produce branded products and there are also barriers to entry. There are collusive and non-collusive oligopolies.

327 Questions

What does regulation by oligopoly do?

Oh, dude, regulation by oligopoly is like when a small group of big players in an industry get together and decide, "Hey, let's not step on each other's toes too much." It's like a little club where they set the rules to keep out the pesky competition. So, basically, it's like monopoly but with a few more players in the game.

How oligopoly affect the efficiency of resources allocation compared to a competition market?

Oligopolies and competitive markets allocate resources differently, affecting economic efficiency in several ways. Here’s a detailed comparison:

Resource Allocation in Competitive Markets

Price Mechanism: In a perfectly competitive market, prices are determined by supply and demand. Firms are price takers and must accept the market price.

Efficiency:

Allocative Efficiency: Resources are allocated where they are most valued by consumers, as prices reflect the marginal cost of production.

Productive Efficiency: Firms produce at the lowest point on their average cost curve due to competitive pressures.

Consumer Welfare: Consumers benefit from lower prices and a wide variety of goods and services due to intense competition.

Resource Allocation in Oligopolies

Price Setting: In an oligopoly, a few large firms dominate the market. These firms have significant control over prices and can influence market conditions.

Efficiency:

Allocative Efficiency: Often compromised because firms have the power to set prices above marginal cost, leading to higher prices and reduced output compared to a competitive market.

Productive Efficiency: May be less efficient than in competitive markets due to less pressure to minimize costs. However, large firms may benefit from economies of scale, which can improve productive efficiency.

Consumer Welfare: Typically lower compared to competitive markets because higher prices and limited choices reduce consumer surplus.

Key Differences

Market Power:

In competitive markets, firms have little to no market power, leading to optimal pricing and output decisions.

In oligopolies, firms have significant market power, which can lead to higher prices and reduced output.

Barriers to Entry:

Competitive markets have low barriers to entry, encouraging new firms to enter and drive innovation and efficiency.

Oligopolies often have high barriers to entry, reducing competition and potentially leading to inefficiencies.

Innovation:

Competitive markets drive innovation as firms constantly strive to outperform their rivals.

Oligopolies might have more resources for R&D, potentially leading to significant innovations. However, the lack of competitive pressure can sometimes lead to complacency.

Theoretical Perspectives

Cournot Model: Assumes firms compete on quantity. Oligopolies produce more than a monopoly but less than a competitive market, leading to higher prices than in perfect competition.

Bertrand Model: Assumes firms compete on price. If firms set prices, it can lead to a situation akin to perfect competition with low prices, but this depends on the assumption of identical products and no capacity constraints.

Kinked Demand Curve: Suggests that firms in oligopolies are hesitant to change prices due to potential competitive reactions, leading to price rigidity.

Empirical Evidence

Studies have shown that oligopolistic markets often exhibit higher prices and lower output than competitive markets, supporting the theoretical predictions of reduced allocative efficiency. For example, the airline industry, characterized by a few dominant carriers, often shows higher prices on routes with less competition.

Conclusion

Overall, oligopolies tend to be less efficient in resource allocation compared to competitive markets. They can lead to higher prices, reduced output, and potentially lower levels of innovation and consumer welfare. However, the potential for economies of scale and significant R&D investments in oligopolies can sometimes offset these inefficiencies to some extent.

For a more in-depth analysis, references from economic textbooks and empirical studies such as those found in journals like the Journal of Economic Perspectives or The Quarterly Journal of Economics can provide further insights.

Is digital camera makers pure competition or oligopoly?

No. Depending on how you count them, there are at least a half-dozen to a dozen manufacturers of digital cameras (Canon, Nikon, Olympus, Sony, Samsung, Panasonic, Pentax, maybe HP, Casio, Leica, Ricoh, Fuji). Include mobile phone makers like Apple that have taken a big chunk of from the point-and-shoot makers (RIP Kodak, Minolta, Yashica, Konika) and there are too many players for an oligopoly. The number hasn't changed that much in the past 20-30 years.

Types of profits in the long run in oligopoly?

Supernormal profits due to high barriers to entry. Profits in the long run are determined by the barriers to entry. If there is high barriers to entry, new firms cannot enter the industry easily and hence cannot competed with existing firms for profits. Existing firms would be able to enjoy supernormal profits. On the contrary, weak barriers to entry means that the long run profits would be competed away by new firms entering the industry, hence firms would earn normal profits. Oligopoly market is characterised by high barriers to entry, largely due to non-price competition such as branding, advertising, etc. High barriers could also be due to economies of scale and high fixed cost.

Are sport teams oligopolies?

No and Yes. All professional sports, with the exception of baseball, are required to abide by all applicable anti-trust laws. Baseball (based on the 1972 US Supreme Court decision - please see http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=407&invol=258 for the full case) confirms a prior ruling that baseball is more of a game than a business and therefore anti-trust laws do not apply. Hope that helps!

How would OPEC nation feel about the rising cost of petroleum?

OPEC would never trade with the country that rose the price of petroleum.

When is Economists usually call an industry an oligopoly?

the four largest firms produce at least 70 to 80 % of the output

Is Nike a oligopoly?

No - it has lots of competitors.

Price and output determination under oligopoly?

Explain how price and output decision are taken under conditions of oligopoly.

Which is the largest oil producing country in the OPEC?

The largest oil producing country is arabia.all the south west countries are famous for this purpose.But the iran,iraq,oman are also very famous.the most largest one is soud-i-arabia.here about 250 meter well of oil is present.from this well the pipe line system has made between the amrica and other europien countries.

THIS PARAGRAPH HAS GIVEN BY FARIDA REHNAN.