DYNAMICS OF OLIGOPOLY IN THE DIFFERENT INDUSTRY & PRICE WAR:

1. OLIGOLPOLY
Oligopoly is a market situation where there are more than 2 producers of a product. When
there are two producers, it is called duopoly, which is also an imperfect market situation and
so a special case of oligopoly. The number of producers in oligopoly are lesser than that of
perfect competition and monopolistic competition. We will be presenting the nature of this
market and examining the features with case studies in brief.
Oligopoly is an actual market situation. In the report we have presented a few of the real life
market structures. It is an imperfect market with few sellers of similar or differentiated
products. The few firms in oligopoly enjoy a high degree of market power. The market power
depends on the number of sellers, barriers to entry and availability of substitutes. Based on
these criteria oligopoly enjoys substantial market power. In this market condition, a few firms
dominate.
When we think of soft drinks industry example, which names come to mind? Pepsi, Coca-
Cola. Tyre manufacturers- Dunlop, firestone, dominate. Other examples of oligopoly are
Indian aviation Industry, mobile service providers, Smartphone OS, Petroleum, Steel industry
etc. Take the case of electricity distribution in Mumbai. Electricity distribution is in the hands
of Tata Power and Reliance Energy. This means that these two big players have a lot of
market power in deciding the price.
Characteristics of Oligopoly:
 Profit maximization conditions
 Ability to set price
 Entry and exit
 Number of firms
 Long run profits
 Product differentiation
 Perfect knowledge
 Interdependence
 Non-Price Competition
DYNAMICS OF OLIGOPOLY IN THE INDIAN AVIATION INDUSTRY
& PRICE WAR:
By Tirthankar Sutradhar, 1421427
The aviation industry in India, especially with regard to passenger airlines, follows a strictly
oligopoly structure with the characteristics such as:
a. An industry dominated by a small number of large firms.
b. All airline firms sell either identical or differentiated products (the only differentiation
here being in service quality and frills offered).
c. The industry has significant barriers to entry (which holds true both with respect to
regulations and huge capital investment required).

2. d. Indian airline industry retains oligopoly due to enormous barriers to entry for new
competition. Thus, barriers to entry are important to successful operation of cartels.
The aviation industry in India used to be exclusively managed by Air India and Indian
Airlines and the flying rates used to be high. With the entry of new private airlines like Jet,
Kingfisher and Indigo into the aviation industry more competition was infused into the airline
industry. They started offering various schemes like no frill flights, discount on advance
booking and concessions for frequent fliers which attracted many people to opt for the
services offered by these airlines. This made Air India also to offer similar types of
concession and facilities to the customers. In this case, we see that the competition was based
on both price wars to some extend and improved services in such way that flying became
affordable to a larger section of people.
Fig reference: http://insighter.me/category/industry/aviation/
PRICING WARS:
 Indian Airlines announced 3-15% cut in fares in June 2002, next day Jet Airways
reduced prices by Rs.635 for economy class.
 When an airline carries slashes its price of offers discounts on selected bookings, the
same is followed by the other instantly. For example, in 2013 Indigo followed 1-rupee
base fares for metro-to-metro Diwali bookings when SpiceJet announced the same.
 In 2014, Air Asia a budget/low-cost carrier, entered Indian Market and offered flight
seats for a very low price as compared to its competitors, it was able to pre-book a
whopping 28,000 seats in just 48 hours. The other airline carriers delayed too late to
counter the price war thrown by Air Asia and lost business to some extent.
India is one of the most expensive aviation markets to operate in the world. State taxes of as
much as 30 percent make jet fuel, which contributes to about half an airline’s costs, the
costliest in the region. That means making money is a struggle. So a price of war to keep the
prices low as much as possible results to a net loss to the airlines, though over the last ten
years, the Indian aviation industry witnessed a period of high growth, with total passenger
traffic growing at a CAGR of around 18% during 2003-11. Airlines in India have lost a
combined 594 billion rupees over the past seven years, CAPA estimates, due to the same.

3. OLIGOPOLY IN SOFTDRINK INDUSTRY
By Neha Thakur, 1421447
Three firms control 89% of soft drink sales:
 42.8% : Coca-Cola’s 25 brands and 139 varieties
 31.1% : Pepsi’s 18 brands and 163 varieties
 15% : Dr. Pepper Snapple Group’s 20 brands and 109 varieties
Coca cola and Pepsi are in an oligopoly market. They are mutually and strategically
interdependent, as a decision made by one firm invariably affects the other. They are selling
the homogeneous product so they can control over price but they will consider their action
when they would like to change the price of their goods. They usually change the price of
their goods according to kinked demand curve. They are using cut-throat competition to
attract more potential customer.
Normally, both of the firms use low-price strategy at the same time to maximize the market
profits. Especially when summer holidays arrive, both of the firms use cut-throat price
competition to increase their sales so as to increase their profit. Game theory is applied to be
a market share. A game theory is a pricing policy and it helps a firm to enhance profit. There
are high barriers to enter this market. Coca cola and Pepsi have signed a cartel contract. The
two firms will become a cartel to avoid other firm to enter this market because it will
decrease their economic profit. Cartel is a small number of firms acting together to limit cost,
raise price and increase profit.
In 2003 Coke-Cola introduced its affordable pricing strategy in which it drastically reduced
its prices to Rs.5. This led to an increase in Coke's market share. The longer Pepsi had
allowed Coke to have an edge over itself in terms of market price the more consumers it
would had lost in the long term. Thus Pepsi was forced to follow as it would lose a massive
portion of the market share, being a close substitute. But these two firms couldn’t sustain the
market at such low prices and both withdrew from this lower pricing strategy. Since then (for
9 years) the prices have remained stable at Rs.10. Price rigidity in oligopolistic firms can be
explained through the Kinked Demand Curve model. The kinked demand curve represents
how the pricing behaviour for each firm is strategic.

4. A reduction in market price in an oligopolistic market structure is always beneficial for the
consumers as it provides them with a variety of cheaper close substitutes. The only
stakeholder with a negative impact would be the firms, as lower prices would mean a lower
margin of profitability. The role of non-price competition is essential in this case. Also
advertising can increase competition between firms and contribute in decreasing their
monopoly power. Although there are some drawbacks for advertising such as it increases the
cost of production thus resulting in higher prices for consumers. It creates needs that
consumers would not otherwise have, resulting in a waste of resources. Successful
advertising can lead to increase in monopoly power of a firm.
OLIGOPOLY IN TELECOMMUNICATION
By Akansha Sharma, 1421435
The telecom industry in India has seen an astonishing growth in the last decade and a half. It
is one of the fastest growing telecom sectors in the world with an annual growth of 15% to 20
% . According to the research the market share is as follows: Bharti telecom’s AIRTEL leads
the market share with 24.4% followed by Vodafone India with 19.5% Reliance 14.9%, Idea
15.3%, BSNL 8.2%, Tata 7.0%, Aircel 5.3% - the remaining share being held by smaller
operators such as Uninor, Videocon, MTS, Loop and some more. The above mentioned
figures depict that over 80% of the market is held by 7 operators. With this information, the
nature of economic structure of mobile telecom industry in India can be described as an
OLIGOPOLY.
Interdependence: Interdependence in terms of decision making processes. This happens
because, the number of influential competitors is few, and the change in price or output by
any of the firm causes direct effect on the income of its competitor. So demand of the product
by the market is not the only criterion that sets up the price of the service. Non-price
competition in telecom would include competition over a) better coverage of network b)
celebrity endorsements c) branding d) aggressive advertising techniques e) better customer
service f) diversifying into related product line. Non price competition occurs because of the
fear of price wars eventually affecting the revenue of a particular firm and also the industry as
a whole. The core behind non price competition is the difficulty faced by competitors to
counter techniques like aggressive advertising, personal selling, or improvement in the
product or service Example – Market leader Airtel has always endorsed superstars of Indian
cinema with its brand to attract masses. Superstars like Shahrukh Khan and Amitabh
Bachchan are associated with the brand for a long time. Whereas Vodafone has never
endorsed celebrities to the brand and has rather created animated characters called Zoozoos
for its strong advertising campaign which created a ‘buzz’ in the market. Both the companies
have indulged in non-price competition of advertising just to lure consumers and target a
larger market share.
Ability to set price: The dominant firms in oligopoly have the advantage to set the price of
the product at any hike in price of the product demanded will result in loss of a particular firm
as the consumer will shift to the other supplier as he gets the same product at a lesser price.
In the case of Indian telecom, the dominant players like Airtel, Vodafone, Reliance or Idea
may settle for a reasonable share of the market, in lieu of their existing market share. It
analyses the interdependent behavior of the firms in an oligopoly. It indicates the how the

5. choices between operating firms affect the outcome of a game. If any firm raises the price
over and above the existing price, the competitors will not follow this change and the firm
will lose the market share. This would cause the consumers to shift to the suppliers providing
the same service for a lesser price. If any firm lowers its price below the prevailing market
price, the competitors will also try and match the price to retain the market share. Hence the
firm’s total revenue will decrease and output will just increase marginally.
MAJOR FACTORS AFFECTING TELECOM COSTS THAT EFFECT THE INDUSTRY
High infrastructural costs – To enter service areas, service provider incur huge set up and
infrastructural costs. These infrastructural costs to develop the service involve risks such as
logistical risks, longer time duration to launch the service, setting up of new towers and
dearth of highly skilled personnel to develop such infrastructures.
Allotment of spectrum by the Government – One of the major concerns of the industry is the
availability of the spectrum that is used for the supply of the service. It is provided by the
government and has been a controversial issue in recent times for this sector in India. Being a
limited resource, it gives a possibility of unhealthy bidding by the service providers resulting
in unviable financial approach to the price thus hampering the growth of highly competitive
sector.
OLIGOPOLY IN STEEL INDUSTRY
By Sreenath Menon, 1421423
The steel industry is frequently believed to be an indicator of commercial progress because of
the critical act frolicked by steel in infrastructural and finished commercial development. The
global steel industry is exceedingly cyclical, extremely competitive and yet fragmented in
words of marketplace share. Currently the industry is at the height of the company series and
is going through a consolidation period, that could consequence in the tinier contestants being
acquired by the larger ones. The finished output from the industry exceeds 1.4 billion tons in
2005, most of it increased by the rise in output from China. This is anticipated to rise more,
making steel output from China amid the biggest in the world. The steel industry
demonstrates a high degree of variability, both in words of paycheck and production. The
factors attributable for steering this variability are globe commercial conditions alongside a
particular sensitivity to the presentation of the automotive, assembly, capital goods and
supplementary manufacturing produce industries. The commodity nature of steel, the
producers and customers limited control on worth, and the demand and supply disparity have
made steel benefits volatile. Significant increases in benefits for metals and power above the
past two years have also contributed to increased variability in the industry.
World crude steel output grasped 1,343.5 million metric tons (MMT) for the year 2007. This
is an increase of 7.5% on 2006. The finished embodies the highest level of crude steel output
in past and it is the fifth consecutive year that globe crude steel creation produced by extra
than 7%.While the overall output stays elevated, 2007 has perceived a tiny slowdown in the
development rate, year-on-year development peaking at the conclude of the early quarter.
This slowdown in development was perceived in nearly all the major producing states and

6. spans encompassing China, EU, CIS and the US. The exclusion was in the Middle East
whereas creation development accelerated across the subsequent half of the year.
China’s steel creation in 2007 grasped 489 mmt, a 15.7% rise on2006. This embodies a
development reduction from the 18.8% attained in 2006, 26.8% in2005 and 26.1% in 2004.
The slowdown in 2007 was most seeming across the last quarter, alongside an 8.6%
development rate. Though, China stays the steering power behind the still forceful globe
creation figures. Lacking China globe crude steel creation would have merely grown at 3.3%.
Supplementary BRIC states additionally upheld moderately elevated growth, with India and
Brazil recording 7.3% and 9.3% increases respectively. In Russia creation development was
flat from the conclusion of the subsequent quarter managing to an annual growth figure of
2%. The BRIC allocate of globe creation has been producing rapidly since 2000. It has grown
from 31% of finished in 2001 to 48.2% in 2007. Steel creation in the EU (27) from the
subsequent quarter stayed stable, alongside year-end figures of 210.3mmt, a 1.7%
development above 2006.In the US steel creation displayed negative development in the early
three quarters but showed a turnaround in the fourth quarter alongside three consecutive
months of growth. Finished crude steel creation for the US was 97.2 mmt, a 1.4% reduction
on 2006 figures.
After the news came out that Tata is seizing above Corus it was not consented by the public
or rather the financier in a affirmative way. The stock worth dropped by concerning 7% in 15
days time. The deal was finalized at concerning 18.2 billion dollar. This counselled
acquisition represents a delineating moment for Tata Steel and is completely consistent
alongside the strategy of development across global development. This made Tata the 5th
largest steel producing country in the world. The sales have increased to Rs 63,587/- crores
for the early half of FY08.
Hoping that supplementary steel manufacturers and associates of the steel transactions should
additionally display a sense of company obligation by rolling back their benefits in the
attention of curbing inflationary trends. Merely Ispat Industries came out in prop, confessing
there was a case for a reduction in benefits in the internal marketplace to manipulation
inflation.
Demand increased from 850mmt in 2000 to 1060mmt in 2005 to 1155mmt in 2007 whereas
supply increased from 840 in 2000 to 1070 in 2005 to 1185 in 2007 the main reason for this
change is due to the rising demand for the steel all above the world. The main reason is due to
the rising demand for steel in China supplementary Asian states.
A demand forecast for the so-called BRIC economies (Brazil, Russia, India, China), which
contain rather disparate outlooks as regards steel consumption. According to the IISI, the
BRIC’s will jointly give roughly three quarters of globe consumption growth in both 2007
and 2008. In Brazil, steel use is anticipated to increase 15.7% in 2007and 5.1% in 2008. For
Russia, the figures are an astounding 25% in 2007 and 9.5% in2008. For India the conjectures
for the two years are suitably 13.7% and 11.8%, and for China 11.4% and 11.5%.

7. OLIGOPOLY IN SMARTPHONE OPERATING SYSTEMS
By Vikas R, 1421430
The smart phone market is similarly dominated by a handful of companies, the most powerful
two being Google Android and Apple iOS. Those companies have deep relationships with the
handset providers and are able to have their system pre-installed on each phone. As with
computer operating systems, these relationships become self-reinforcing as they grow.
Android still leads the pack in terms of pure penetration — as of this past June, it accounts
for 51.8% of smartphones in use (up from 50.4% in Q1 2012) with Apple’s iOS right behind
it at 34%. Don’t feel too bad for Apple though, as they still have the highest manufacturer
share by far (34% in Q2), with Samsung at a distant second.
That those two platforms still hold first and second place shouldn’t come as surprise, and
their slight gains come at a cost. Nielsen has RIM still clinging to third place despite another
quarterly drop, as it now accounts for 8.1% of smartphones in use. Meanwhile, the rest of the
competition languishes below 5% as of Q2 2012.
It’s that part of the market that seems the most interesting right now, as there’s still plenty of
room in the market for a third strong mobile ecosystem to emerge while Apple and Google

8. continue to slug it out. The question though is what that third platform will be, and there are
no clear indicators to be found in Nielsen’s data.
OLIGOPOLY IN PETROLEUM INDUSTRY
By Tom Thomas, 1421428
Oligopoly is an industry where a few sellers can influence the market price and quantities and
this is true in the case of petroleum producing countries as there are few sellers and they
control the supply and somewhat prices in the petroleum market. The bad effects of an
oligopoly start when they try to act as a monopolist and try to raise the price and restrict the
quantity. For that they form a cartel.
Hence oligopolies harm us when they form cartel and the harm is that they raise the price and
lower the quantities which reduces the consumer and social surplus. And especially in the
case of petroleum products that are bottle neck industry i.e. the effect on their prices will be
multiplicatively translated towards all the other industries.
If petroleum was not an oligopoly then many of the past inflationary and recessionary
experiences that world has faced might not have occurred. Even the current hike and fall of
oil prices has shocked and toppled the economies of many countries
Petrol companies have the market structure of an oligopoly. An oligopoly is a market structure where
there are a few dominant firms whose behaviour is interdependent. There are a few dominant firms
relative to market size, and they each command a large proportion of the market share, thus having
strong monopoly power. Examples of petrol companies include Shell, Caltex and Exxon Mobil. Their
demand curve is downward sloping, meaning that they are price setters.
Petrol is a homogeneous product; hence the oligopoly is known to be pure or perfect. Theoretically
only one firm can prevail, but since the firm’s demand is not perfectly elastic, the firm has price
control over its pricing policy. There is a great fear of rivals’ reactions to each respective firm’s
pricing strategies due to petrol being undifferentiated.

9. There are also huge barriers to entry in an oligopoly. These barriers can be both natural and artificial.
The few dominant firms in the oligopoly enjoy substantial internal economies of scale as they are
operating on a larger scale, allowing the cost of the firm to fall continuously over a very large output.
An example is in power and utilities. They have a large minimum efficient scale relative to market
demand. Hence, it is difficult for a new entrant to produce at such a low unit cost, as its scale of
operations would be much less than the existing dominant large firms, thus unable to compete
effectively with the incumbents. This natural barrier thus discourages potential new firms from
entering. In addition, the incumbent can deliberately reduce the price of its products to ward off
potential entrants.
The dominant firms can gain control of the market through product differentiation, which seeks to
convince or persuade customers that there are no close substitutes for the firm’s products.
SUMMARY AND CONCLUSION
Experimental oligopoly markets have been investigated here in a controlled setting modelled after a
price-setters' oligopoly market. A stronger conclusion may be drawn than that reported by Siegel and
Fouraker: a decrease in the number of firms in a market produces less competition which cannot be
attributed to differences in the structure of the profit functions. These results suggest that tacit
collusion is possible and more likely to occur in an oligopoly market with a small number of firms.
All of the markets converged to prices in or just below the cooperative-non cooperative range. The
number of firms in the market had a significant effect upon average profit and price under both
information states. Although information did not affect mean price and profit significantly, it did have
a significant effect upon the variances of price and profit. Information seems to induce bargaining
attempts that tend to result in price war or collusion. Thus, information is likely to increase the
variability among markets, but should reduce the variability within one market over time.
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