2. OLIGOPOLY
•
Characteristics of an Oligopoly Market– Few sellers offering similar or identical products
– Interdependent firms
– Best off cooperating and acting like a monopolist by producing a small
quantity of output and charging a price above marginal cost.
– Strategic interactions between firms.
•
•
Ex: Mobile networks like airtel, Vodafone, Docomo etc.
Ex: Cement companies like: Jaypee, ultra tech cement, ambuja cement etc are the
identical product manufactured by producers. All the producers come together to take
a decision about price of the product, and about the subsidiaries from govt.
3. MARKETS WITH ONLY A FEW SELLERS
• Duopoly
– Oligopoly with only two firms.
– Decide quantity to sell
– It is the simplest type of oligopoly.
– Price determined on the market.
4. PUBLIC POLICY TOWARD
OLIGOPOLIES
• Cooperation among oligopolists is undesirable
from the standpoint of society as a whole
because it leads to
– production that is too low and
– prices that are too high.
5. Restraint of Trade and the Antitrust Laws
• Antitrust laws make it illegal to restrain trade
or attempt to monopolize a market.
Sherman Antitrust Act of 1890
Elevated agreements among oligopolists from an
unenforceable contract to a criminal conspiracy.
Clayton Act of 1914
Further strengthened the antitrust laws.
PROS:
Used to prevent mergers
Used to prevent oligopolists from colluding.
6. Antitrust: Sherman Antitrust Act
• Section 1:
Every contract, combination in the form of
trust or otherwise, or conspiracy, in restraint
of trade or commerce among the several
states or with foreign nations, is hereby
declared illegal.
7. • Section 2:
Every person who shall monopolize, or
conspire with any other person or persons
to monopolize any part of the trade or
commerce among the several states, or
with foreign nations, shall be guilty of a
misdemeanor.
8. Controversies over Antitrust Policy
• Antitrust policies sometimes may not allow
business practices that have potentially
positive effects:
– Resale price maintenance
– Predatory pricing
– Tying
9. Controversies over Antitrust Policy
• Resale Price Maintenance (or fair trade)
– occurs when suppliers (like wholesalers) require retailers
to charge a specific amount ,Might seem anticompetitive.
• Predatory Pricing
– occurs when a large firm begins to cut the price of its
product(s) with the intent of driving its competitor(s) out
of the market
• Tying
– when a firm offers two (or more) of its products together
at a single price, rather than separately, Form of price
discrimination.
10. • What should society do in the face of the high
degree of market concentration in oligopolistic
industries? There are three main points of view.
• MAIN VIEWS OF OLIGOPOLY POWER:
There are three main points of viewDo-Nothing View
Anti trust View
Regulation View
11. • First, the Do Nothing view, claims that the power of
oligopolies is not as large as it appears.
• Though competition within industries has declined,
they maintain that competition between industries
with substitutable products has replaced it.
• Finally, they argue that bigger is better, especially in
the current age of global competition. Economies
of scale, produced by high concentration, actually
lower prices for consumers.
12. • Second, the Antitrust view argues that prices
and profits in highly concentrated industries
are higher than they should be.
• By breaking up large corporation into smaller
units, they claim, higher levels of competition
will emerge in those industries.
• The result will be a decrease in collusion,
greater innovation, and lower prices.
13. • The third view is the Regulation view, which can be seen as a middle
ground between the other two. Those who advocate regulation do
not wish to lose the economies of scale offered by large
corporations, but they also wish to ensure that consumers are not
harmed by large firms.
• They argue that subdivision of Big industries is not favourable. They
as a giant company may produce other good benefits for the masses.
• But they also encourage regulated market and even suggest
nationalization in case of non-compliance of market regulations.
• But they also suggest the ill effects of nationalization at the same
time.
14. • Therefore, they suggest setting up regulatory
agencies and legislation to control the
activities of large corporations. Some even
suggest that the government should take over
the operation of firms where only public
ownership can guarantee that they operate in
the public interest.
15. Conclusion
• Whichever view we take, clearly the social benefits
of free markets cannot be guaranteed, and the
markets themselves cannot be morally justified,
unless firms remain competitive.
16. Example-Destroyer/Predatory
Pricing
•
•
Microsoft – have been accused of
predatory pricing strategies in offering
‘free’ software as part of their
operating system – Internet Explorer
and Windows Media Player - forcing
competitors like Netscape and Real
Player out of the market
Deliberate price cutting or offer
of ‘free gifts/products’ to force
rivals (normally smaller and
weaker) out of business or
prevent new entrants
Anti-competitive and illegal if it
can be proved
•
Typical of oligopoly with
collusion
