There are four market structures in our economy today : Perfectcompetition, monopolistic competition, oligopolies and monopolies. This essayshall describe the oligopoly market.
The definition of an oligopoly states that in an industry, a smallnumber of firms dominate the market. There are a low number of firms in theindustry, becasue and adding to the barriers to entry. The barriers of entry toan oligopolistc market include the financial resources needed to enter and suchregulations from the government or patents.
In this market, there is a high degree of differentiated products, andso with all of the above factors combined in this market, the competition is ofsales, not of price. There is also a factor of concern from the firms in anoligopolistic market – where the actions of one firm will subsequently effectthe other firms in the industry. This results in each oligopolist watching itscompetitors closely, and is a method of competition between the firms, otherthan by price wars.
The Kinked Demand Curve, is the economical graph that shows whyoligopolists tend to adopt a common price -to achieve the greatest price andoutput.
The Hilmer committe, estabilished 1993, is a government body who acts inthe interests of recommendations of National Competition policies.
In 1995, the Trade Practises Act (T.P.A.) was introduced. The T.P.A. sets out the general responsibilities of sellers, such as the firms ofoligopolies, and out laws actions that may be unfair to the consumers. Thisincludes misleading advertising, market sharing and collusion.
Collusion is where the firms of an industry meet a set, common price, or agreenot to come into each other in the market area. These two above practises areways of government intervention that regulate the conduct of oligopolies.
Australian examples of oligopolies include, Hoyts, Kelloggs, Bridgestone,Dunlop, Carlton United, Dulux and Coca Cola.
In conclusion, Oligopolists tend to adopt a similar price, for similarproducts, If price is to be raised, the firms find it best to do so together.
Oligopolists avoid price wars. Sales competition, not price competition istheir area.