Which helps enable an oligopoly to form within a market?
Which helps enable an oligopoly to form within a market?
- Costs of starting a competing business are too high.
- The government restricts market entry.
- The number of options in a market confuses consumers.
- No competition exists between producers.
Answer; (A) Costs of starting a competing business are too high
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What is an oligopoly?
An oligopoly is a market or industry with a few large companies (or firms) who control a large percentage of the market share. There can be many small oligopolies in an industry, but the term “oligopoly” is usually used for those industries with four or fewer firms.
An oligopoly is not to be confused with a monopoly, which has to do with government-granted rights over an entire industry. An oligopoly is the result of market competition, where the few large companies came to dominate their industry through natural or artificial means.
In some cases, a small number of firms may hold a large percentage of an entire industry’s market share after years of success in that field. This can largely be attributed to high demand for a particular product or service in the industry, which allows them to charge premium rates for their product or service, and prices that are too expensive for new entrants into their market who might otherwise undercut their profit margins.
What is an oligopoly market?
An oligopoly market is highly competitive with relatively few sellers dominating the sales of a particular product or service. Market demand for that product or service is mostly driven by the largest companies in the industry, as they negotiate with sellers over prices and distribution volumes.
An oligopolistic market naturally leads to large quantities of both innovation and sheer confusion. Buyers within an oligopoly are unable to compare their choices simply by price alone, since firms have different capacities to produce goods or services, resulting in no single seller having a “clear market leader”.
When an oligopoly exists, how many producers dominate the market?
The Oligopoly has been known to have one producer that is capable for understanding with respect to results. In fact, it has changed with suppliers and sellers in the market range.
This denotes a clear cause of a high increase in the price. The products are determined by the selling price and in its respective community. It should guide with average results by taking place with dominating results in the market.
Why do oligopolies exist? oligopolies exist?
arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag. They can either scratch each other to pieces or cuddle up and get comfortable with one another. If oligopolists compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to zero profits for all. If oligopolists collude with each other, they may effectively act like a monopoly and succeed in pushing up prices and earning consistently high levels of profit. Oligopolies are typically characterized by mutual interdependence where various decisions such as output, price, advertising, and so on, depend on the decisions of the other firm(s). Analyzing the choices of oligopolistic firms about pricing and quantity produced involves considering the pros and cons of competition versus collusion at a given point in time.
A combination of the barriers to entry that create monopolies and the product differentiation that characterizes monopolistic competition can create the setting for an oligopoly. For example, when a government grants a patent for an invention to one firm, it may create a monopoly. When the government grants patents to, for example, three different pharmaceutical companies that each has its own drug for reducing high blood pressure, those three firms may become an oligopoly.
Similarly, a natural monopoly will arise when the quantity demanded in a market is only large enough for a single firm to operate at the minimum of the long-run average cost curve. In such a setting, the market has room for only one firm, because no smaller firm can operate at a low enough average cost to compete, and no larger firm could sell what it produced given the quantity demanded in the market.
Quantity demanded in the market may also be two or three times the quantity needed to produce at the minimum of the average cost curve—which means that the market would have room for only two or three oligopoly firms (and they need not produce differentiated products). Again, smaller firms would have higher average costs and be unable to compete, while additional large firms would produce such a high quantity that they would not be able to sell it at a profitable price. This combination of economies of scale and market demand creates the barrier to entry, which led to the Boeing-Airbus oligopoly for large passenger aircraft.
The product differentiation at the heart of monopolistic competition can also play a role in creating oligopoly. For example, firms may need to reach a certain minimum size before they are able to spend enough on advertising and marketing to create a recognizable brand name. The problem in competing with, say, Coca-Cola or Pepsi is not that producing fizzy drinks is technologically difficult, but rather that creating a brand name and marketing effort to equal Coke or Pepsi is an enormous task.
In the United States, which type of industry is often considered part of an oligopoly?
In the United States, cell carrier services are often considered to be a part of an oligopoly. However, apart from cell services, the oligopolist structure has several other industries. While oligopolies may seem similar to a perfect competition economic structure, where consumers have multiple choices for a similar product, and producers or sellers are bound by consumer choices and the prices set by consumers themselves, oligopolies consist of certain large companies and industries dominating the market. These companies overshadow the sale and performance of several smaller companies, due to a number of reasons.
The brand value and image of these large brands have been ingrained in the mind of consumers, who prefer to choose products of these companies. Thus we can say that economic competition exists between these small numbers of larger companies, and they also regulate prices. Thus, in this market setting, the prices are definitely not fixed by the consumer. Rather, the consumer gets to choose between multiple options for a particular product, within a specific price range.
One of the primary characteristics of an oligopolist setting is that the market shall be dominated by two or more companies, despite the existence of multiple numbers of smaller companies. These large companies expand into other arenas or absorb other industries within them. The companies strive to maintain a particular price range for a specific set of consumers, and they have to maintain the quality standards that put them on the map. Innovation and improvisation are the two techniques that are the keys to success in an oligopolist setting.
One of the best examples of an oligopolist setting in the U.S. Economy is the computer operating system, which is dominated by the biggest giants called Apple Inc. and Google. While both of them are potential rivals in the market, their methods of innovation and comparative technological performance have helped to maintain a certain level of co-operation within the operating system business.
What power does a market leader in an oligopoly have ?
Monopoly power. A limited number of companies in an oligopoly with a significant market share enables these firms to control the price and output. Therefore, this market structure has some monopoly power.
What is one common criticism of both monopolies and oligopolies?
A. They invest too much money into research and development.
B. They allow too many businesses to flood into an industry.
C. They eliminate the economic benefits of competition.
D. They allow many more businesses to enter an industry.
Answer: C. They eliminate the economic benefits of competition.
Oligopoly is probably the best market for technological change because
The typical oligopoly has the funds to carry out research and development and believes that its competitors are innovating, which motivates it to conduct research and development.
What are The Characteristics of Oligopoly?
The characteristics of an oligopoly include:
1. Few sellers
Oligopolies are commonly found in marketplaces where there are few sellers and relatively high competition. The reason there are so few sellers is because the new entrants into the market face certain barriers to entry, including the inability to access resources (e.g., raw materials) or the inability to gain the capital needed for expansion.
2. Barriers to entry
Most industries have barriers applied to new entrants. To be able to compete, a new entrant must have resources (e.g., raw materials, money) and a supply chain that allows them to compete with the existing sellers in the industry.
Many oligopoly markets include high barriers to entry, which are mainly due to the cost of starting up production; resources such as land and labor are almost impossible for new entrants to acquire.
In an oligopoly, there is a high degree of interdependence between each seller in the market. The sense of interdependence arises from each seller’s position in the value chain, as well as their ability to interact with other sellers.
For example, a single firm producing pharmaceuticals may be unable to control the supply of raw materials or skilled workers. In order to be able to operate in this industry, they must have significant resources and the ability to purchase key materials and supply chain services from other firms operating within this industry.
4. Prevalent advertising
Oligopolies commonly exhibit high levels of advertising to convince consumers that the product/service is useful and necessary. Due to high barriers to entry, oligopoly markets are often dominated by large firms, allowing them to spend a large amount of money on marketing campaigns.
What are The Conditions for an Oligopolistic Market Structure?
Few conditions must prevail for an oligopoly to exist. The conditions include:
1. High entry costs in capital expenditures
In order to enter an industry, companies must spend money on capital. Capital is the equipment, buildings, computer systems, and other resources necessary to provide goods and services. The primary obstacle to new entrants into an oligopoly is the high cost of entry in capital expenditures.
2. Legal privilege
A firm with the legal right to compete in an oligopoly is difficult for an outside company to enter without facing the possibility of either legal or financial ruin. For example, a large corporation can take over another firm’s assets and properties so that it can use the resources of that firm to compete against new entrants.
3. A platform that gains value with more customers
One way that a big firm can gain market share and secure its position in an oligopolistic market is through network effects.
A company with a platform-based product can develop a larger user base and secure its dominance in the market over time. This is because once this large group of users has been brought into the company’s network, there are fewer potential customers for multiple companies to compete against each other.
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Is Netflix’s business model an oligopoly industry?
Netflix is in an oligopoly market because there are only a few other major companies that provide streaming services, like Hulu and Amazon Prime video.
Netflix has become a giant in the video industry by providing a platform for users to watch television shows and movies over the internet.
The company is using network effects to gain share in the online movie and television show market, by spending millions of dollars on making its own original TV shows and movies, in addition to licensing content from third-party producers.
Negative Effects of an Oligopoly?
Oligopoly can benefit the market when it is efficient and produces quality goods at affordable prices, but in many cases, it can cause harm. The negative effects of oligopolies include:
1. Price fixing
Producers in an oligopoly often collude to keep prices high. When this collision occurs, it is called price fixing, and it is illegal.
2. Lower quality products or services
When there are fewer firms in a market, companies tend to produce lower quality products because there are less competitors to make them improve the quality of their products.
3. Monopolistic control of the market
Because oligopoly companies have control over the market, they can manipulate prices and restrict the output of goods and services. This leads to the formation of a monopoly, which is a market structure in which there is only one firm that produces all products or services in the market.
Example of a Current Oligopoly?
Current oligopolies in the market include:
2. Charter Communications (CHTR)
3. AT&T (T)
Why is Oligopoly Bad?
Oligopolies are bad for consumers because they put power into the hands of a few companies. If a few oligopolies control many industries, then the market can be easily monopolized and prices can rise. This happens when the producers in an industry come together to collude and agree on how to price their products and services.
The product becomes too expensive or is not of good quality because there are too few firms competing in the market, and companies collude so that they can keep prices high.
Why Does an Oligopoly Exist?
An oligopoly exists because a few producers control the output and supply of products or services in an industry. This happens when there are a limited number of firms in a market, and these firms have significant control over their industries.
How do markets become oligopolies?
What Strategies do Oligopolies Use?
Oligopolies use a number of strategies in the market, including:
1. Price wars: This is when firms in an industry reduce prices to undercut competitors and gain market share.
2. Predatory pricing: This is when a firm lowers its prices below cost to eliminate competitors from the market.
3. Product differentiation: This is when companies differentiate their products or services by making them unique so that consumers will prefer one company’s products to another’s.
How does the dominant seller maintain their dominance in the oligopolistic market?
This happens when the dominant seller has many ways of keeping their customers loyal to them. This can be done in many ways, such as providing special deals and incentives to retain customers, giving out free samples, and advertising their products, making them more attractive.
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