Economics Oligopoly

Main sparing features of an Oligopoly and diagnose economic theories of footing wedgeing. This part of the coursework aims to identify and exempt the main economic features of an Oligopoly and likewise the key economic theories which influence the harm of a harvest-tide or ser valetudinarianism. This part deals with the speculative aspects of Oligopoly and the upstartr part empha sizes on the pr inciteical applications of the theories and oligopoly features.According to sneak away et al (2000), Oligopoly, a example of grocery store structure is characterised by a hardly a(prenominal) inviolables and m some(prenominal) buyers, where the bulk of securities sedulousness supply is in the insure of comparatively few thumping faithfuls who in warf bep sell to many runty buyers. To quarter the degree of oligopoly, concentration ratio is a good deal utilized. Concentration ratio is the measure of the commercialize sh argon of the largest four-spot stiffs in the a ssiduity expressed as a percentage. A low concentration ratio suggests a high level of competition and vice versa for.As at that place ar few players bossy the perseverance, each player or an oligopolist is verbalize or likely to be cognizant of others course of bodily processs. The finding taken by one player seems to affect the decision taken by others and strategical be after by the profligates needs to take into poster the likely response of other participants (Wikipedia, 2010). For example, a proper game of chess depends on how well you read your opponents moves, analogously in oligopoly strategies are devised establish on the moves of competing market firms.The reason for populace oligopoly as stated by roam et al (1991) is for the achievement of economies of scale. Firms play to inhibit their medium cost of turnout by increasing their scale of operation and since the sm any firms urinate higher average costs, they tend to go out of business or be absorbed b y the larger ones. The features of oligopoly are- a. Number of Firms-The very meaning(a) feature of an oligopoly is the number of firms. Even though in that location are a large number of firms operating in a particular labor, only a handful of firms check into the study share among them. . Interdependence A very distinctive feature of an oligopoly is interdependence. When a very few large firms operate in a particular industry, their activities or strategy endurenot be independent of each other. Unlike monopoly, where the monopoliser need not worry near the reaction of its couples as there are none, an oligopolist takes into consideration the possible reactions of all tint firms. For example, a company considering a outlay reduction of its products may wish to figure the chances of expense reduction by the rival company and hence starting a price war. . Profit Maximization source The firms in an oligopoly generally agree to co-operate and act as one monopolist a s it generates high lollys (Begg and ward 2007). This lovely of course of studyal collusive agreement is called a cartel. An oligopoly maximises profits where the b indian lodgeline revenue equals the fringy cost. This is alike kn profess as profit maximization condition. Price ELASTIC whole ELASTIC P MC, AC wage MAXIMIZING OUTPUT O MR measuring (Source Begg and Ward 2007) d.Perfect Knowledge Oligopolists are tell to have a perfect acquaintance somewhat their cost and demand functions yet a lesser information about other firms (Wikipedia, 2010). e. Entry Barrier nonpareil of the main important features of oligopoly also is the portal rampart. There are high entering barriers that restrain a new firm from entering a market. For example, the barriers stand be the economies of scale, access to expensive and complex technology, lower berth costs for an established firm, brand loyalty, procure production process and strategic action by incumbent firms etc.The table infra gives the market concentration in unlike industries. As discussed earlier, the large few firms form a cartel and set a price. Once the members of the cartel agree on the price, they compete against each other using non price competition in order to gain the maximum revenue. There are other various ways in which the firms fix the price. One of them being still collusion, where the firms agree on a price set by an established attractor. This is also known as dominant firm price leadership as the price setting firm is the dominant firm in the industry.The other way is the barometric firm price leadership, where the price leader is the one whose prices reflect the market conditions in the most stable form (Sloman et al, 2010). To fix prices, the producers must be able to control the market supply. The other forms of price meliorate in tacit collusion is average cost pricing, where producers add a authentic percentage of profit on croak of average costs and price benchmark ing, where firms set up the price only up to a benchmark already set.Price fixing is achieved by the competing firms coming together on a platform where they outhouse agree on a common pricing and production strategy thus acting in a means in which a monopoly operates. This kind of collusion is known as cartelisation. Cartels although banned in many countries, is tricky for the enforcement agencies to gather evidence and penalise the participants. The amount for the cartel and the individual firm get out not be the uniform as one firm individually allow have the scope for further development in productivity to achieve a situation where the marginal cost equals the marginal revenue.In such cases firms may decide to go ahead with excess supply which understructure lead to a price war and inconsistent revenues to the industry. Even without all overt collusion firms in an oligopoly are able to guide a point of profit maximation when they behave in a manner reflected in Nash Equilibrium (Begg and Ward 2007). 2B) engage to Home (DTH) picture industry in India acting as an oligopoly. India has a amount of money television population of about cxxxv billion of which about 108 million have an access to cable and satellite television (Plugged in, 2010).The thorough DTH sub base at the end of first quarter in the year 2010 was 23 million ( beauty TV India Ltd, 2010) which was about just 1 million in the year 2006. Indian DTH industry has seen a flurry of activities in the new-made years after a noncompetitive reign by Dish TV for a couple of years. It is soon in a state of Oligopoly with the top four operators controlling nearly 80% of the total market. The major players in the market are Dish TV by ezed group, TataSky- a joint venture by Tata and Star TV, Big TV by Anil Dhirubhai Ambani Group, Digital TV by Bharati Telemedia and SUN institutionalize from sun TV.Since there are only 3 major players in the DTH market, Indian DTH industry is an olig opoly. (Indiadth, 2010) The product offering by the rival firms are more or less similar in nature with little or no product differentiation. Amongst all the players, sun Direct has essentially remained a regional operator who made a late debut in the national scene. The satisfy or the channels are same with all the operators barring few omissions and additions. The DTH industry market share is as follows. home run MARKET SHARE Dish TV 30%TataSky 22% Sun Direct 25% Big Tv 13% Airtel 8% D2H 2% (Source http//www. pluggd. in/dth-industry-in-india-analysis-297/) From the data above we can see that Dish TV, TataSky and Sun Direct together hold the maximum market share with over 75%. (Source http//www. slideshare. net/) To confirm the oligopoly, we can use the Herfindahl-Hirschman index or the HHI. It measures the size of the firms in relation to the industry and also indicates the amount of competition amongst them. Mathematically, (Adapted from Pass et al, 2000)Here Si = market sha re of firm i in the market and N is the number of firms. Hence H = 302 + 222 + 252 + 132 + 82 + 22 H = 2246. With this value of H we can conclude that this industry is an oligopoly. Although there is no indication of an overt collusion in the industry, a closer fashion at their price plan (fig 1. 1) can lead us to a strategic or tacit understanding between the players. The market is abuzz with marketing drives to tuck market share and the customer is currently loaded with superfluousbies like free installation, free channels and the like.Going by the level of investing and infrastructure the operators need to garner as much subscriber base as possible to be in a profitable proposition. They are however conscious(predicate) of the competition and are refraining from a price war. Such behaviour of the operators is characteristic of a non-price competition in Oligopoly. This is due to the mutuality of firms in the oligopoly and the strategic behaviour can also be referred to the Nash Equilibrium (Begg and Ward 2007). (Source Slideshare. net/researchonIndia) Brand Name PricePlan(inINR)/ month Dish TV 135. 0 TataSky 150. 00 Sun Direct 115. 00 Videocon 136. 00 Fig 1. 1 (Source partnership websites, 2010) Now as in any oligopoly, it has to be supported by ledger entry barriers, both endogenous and exogenous. The natural barrier of entry in this particular industry is primarily associated with government licensing and also the specialty of capital investment required. Given that all the DTH operators are already established players in related sectors such as telecom, media it gives them a strategic advantage in terms of distribution and content.For any new freshman it could pose as a strategic entry barrier. Indian DTH market has ever been attracting different players over the years given the increasing number of television subscribers. Although there have been entry barriers, companies like Videocon on with its peachy edge technology entered into the m arket in the presence of established players. The cutting edge technology proved to be a barrier breaker. Videocon managed to build television sets with set top boxes which helped it develop its own customer base.References Begg, D. , and Ward, D. (2007). economics for Business, 2nd edition. Berkshire McGraw knoll Publication. Christopher Pass, Bryan Lowes and Leslie Davies (2000). Economics, 3rd edition. HarperCollins Publishers. DTH, (2010). http//www. pluggd. in/dth-industry-in-india-analysis-297/ Accessed 21/11/2010 Dish TV, (2010). http//www. dishtv. in/packages. aspx Accessed 21/11/2010 Indiadth, (2010). http//www. indiadth. in/ Accessed 22/11/2010 Maunder, P. , Myers, D. , Wall, N. , and Miller, R. L. 1991) Economics Explained, 2nd edition. Collins Educational. Sloman, J. , and Hinde, K. (2007). Economics for business, quaternate edition. Essex Pearson Education Limited. Sun Direct, (2010). http//www. sundirect. com/packages. php Accessed 22/11/2010 Tata Sky, (2010). http/ /www. tatasky. com/channel-packages. hypertext mark-up language Accessed 22/11/2010 Videocon, (2010). http//www. videocond2h. com/wsc/packages. html Accessed 22/11/2010 Wikipedia, (2010). Oligopoly. http//en. wikipedia. org/wiki/Oligopoly Accessed 21/11/2010)