Oligopoly (Economics) Essay

1) Oligopoly is when a particular market is controlled by a sm alone group of firms. For usage supermarkets, there atomic number 18 three (there commonly populate three companies) companies which dominate the market, Wong and Metro, Santa Isabel and Plaza Vea, and Tottus. The main assumptions that economists make when public lecture about a situation of Oligopoly are various three or four large companies dominate the industry, but small companies do exist (smaller companies in the recent example would be for example Arakaki, a doctor trader companion) firms are interdependent, al entrust watch what the competitors do and pretend accordingly (when Wong created the grant card, it did not even conduceed a week when Santa Isabel created the Ms Ms card) the existence of the kinked demand curve (which we pull up stakes see what it is on question b)there are barriers to entry, this means it is serious for other firms to enter the industry non determine competition, as companie s cannot compete by determines, therefore they mother to compete with the service they offer (for example the Bonus and the Ms Ms cards) the oligopoly must be calculating (collusion), this means when the companies, which dominate, clip together to maintain genuinely high prices at the expense of the consumer (for example Umbro and Adidas, sell football shirts at very high prices, as a Manchester United shirt costs approximately $50), companies which work together to maintain high prices should be fined, as it is illegal. Advertising is excessively essential to maintain a high profit and market share, and in any case something very important, which is to develop brand loyalty (for example, once I began to vitiate Sony electro domestics, I begin to have a brand loyalty, as I never had a single problem with them).2) The causes of price stability (when prices are stable, without any commute) existing in a situation of Oligopoly are two. The branch reason is due to the shapes of the Demand curve (AR). Putting an example of gun stations, if there are three companies in this market (Shell, Texaco and Mobil), and if one company, for example shell, decides to accession its prices, no other company impart follow, and its sales will decrease by a lot (there will be no incentive for companies to increase prices as consumers have other companies to buy gas from, therefore it is elastic as there has been a small adjustment in price but a braggy change in demand).A company will also not lower its prices because all other companies in the industry will do the same (as community will go to where prices are lower), and there will be very few benefits, also profits will decrease, as sales increase by only a small amount (there has been a big change in price but a small change in demand, therefore inelastic). Firms will leave the price unchanged, and the firms will have to use other objects to compete with each other, this includes product differentiation by dint of advertising and innovation. The price elasticity of demand looks at the responsiveness of QD to a change in price.It is better for companies to therefore use the same price and find other ways of increasing their sales, for example to use non price competition in order to increase sales. The solution concludes that there is a determinant and stable price-quantity equilibrium that varies according to the number of sellers. In set up each firm makes assumptions about its rivals outfit. Adjustment or reaction follows reaction until each firm successfully guesses the correct output of its rivals.The second reason of price stability in Oligopoly is, if a company maximises its profits where MC=MR, therefore the point where this two curves cross will give us the price and the quantity the company should provide. The marginal revenue enhancement curve is not continuous, as it has a very big good luck in it, this is called the Region of Indeterminacy, and the MC curve can pass throug h any part of this region, this gap in the MR curve, allows MC to transfer without affecting either final price or quantity. For prices to change, costs would requisite to rise above MC.