This sort of market has several Sellerss but merely a few have most of the market portion.
Oligopolies are price setters rather than price takers. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. High barriers of entry prevent sideline firms from entering market to capture excess profits.
Product differentiation Product may be homogeneous steel or differentiated automobiles. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price,  cost and product quality.
Interdependence The distinctive feature of an oligopoly is interdependence. Each firm is so large that its actions affect market conditions. Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves.
For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant.
This anticipation leads to price rigidity as firms will be only be willing to adjust their prices and quantity of output in accordance with a "price leader" in the market.
This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive PC market there is zero interdependence because no firm is large enough to affect market price.
All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors.
The chief supermarkets are now holding more than three quarters which is 72 % of the food market market. For the intent of this essay, it will be a treatment about the market construction of the UK supermarket whether it provides some important benefits for consumers. There are merely few supermarkets with similar merchandises in oligopoly . An oligopoly consists of a select few companies having significant influence over an industry. Industries like oil & gas, airline, mass media, auto, and telecom are all examples of oligopolies. According to the characteristic of the UK supermarket industry, it is proved that the supermarket industry in UK is an oligopoly market. According to Anderton () the oligopoly is a kind of market structure that the whole market is controlled by the few interdependent firms.
Non-Price Competition Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition. Oligopolies in countries with competition laws[ edit ] Oligopolies become "mature" when they realise they can profit maximise through joint profit maximising.
As a result of operating in countries with enforced competition laws, the Oligopolists will operate under tacit collusion, which is collusion through an understanding that if all the competitors in the market raise their prices, then collectively all the competitors can achieve economic profits close to a monopolist, without evidence of breaching government market regulations.
Hence, the kinked demand curve for a joint profit maximising Oligopoly industry can model the behaviours of oligopolists pricing decisions other than that of the price leader the price leader being the firm that all other firms follow in terms of pricing decisions.
As the joint profit maximising achieves greater economic profits for all the firms, there is an incentive for an individual firm to "cheat" by expanding output to gain greater market share and profit.
In Oligopolist cheating, and the incumbent firm discovering this breach in collusion, the other firms in the market will retaliate by matching or dropping prices lower than the original drop. Hence, the market share that the firm that dropped the price gained, will have that gain minimised or eliminated.
This is why on the kinked demand curve model the lower segment of the demand curve is inelastic. As a result, price rigidity prevails in such markets. Modeling[ edit ] There is no single model describing the operation of an oligopolistic market.The chief supermarkets are now holding more than three quarters which is 72 % of the food market market.
For the intent of this essay, it will be a treatment about the market construction of the UK supermarket whether it provides some important benefits for consumers. There are merely few supermarkets with similar merchandises in oligopoly .
The UK definition of an oligopoly is a five-firm concentration ratio of more than 50% (this means the five biggest firms have more than 50% of the total market share) The above industry (UK petrol) is an example of an oligopoly.
As a consequence, the supermarket industry in the UK can be considered as an oligopoly market. An oligopoly market has both advantages and disadvantages for consumers. It is a benefit for consumers to acquire stable and lower monetary value every bit good as .
In these aspects, oligopolies in the UK supermarket industry have less benefit to customers. Conclusion.
In brief, according to the evidence in the body because of the characteristic of oligopoly including interdependent, non-price competition and price rigidity, oligopoly market can avoid the price war and the irrational competition.
The supermarket industry in the UK could be described as an Oligopoly Market. Based on your research into supermarkets in the UK, discuss whether this market structure creates a situation that is more or less to the benefit of consumers. United Kingdom. Five banks (Barclays, Halifax, HSBC, Lloyds TSB and Natwest) dominate the UK banking sector, they were accused of being an oligopoly by the relative newcomer Virgin Money.
Four companies (Tesco, Sainsbury's, Asda and Morrisons) share % of the grocery market.