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Analyzing Case Study - Research Paper Example

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Analyzing Case Study

The analysis will take into consideration the actions and decisions of the energy industry regulators to promote competition in the industry. United Kingdom Energy Markets As demonstrated by the actions of British Gas and the Scottish and Southern Energy, the energy market in U.K is characterized by collusion and cartels. These oligopolistic market structures enable the six larger firms in this industry to regulate the market by determining the prices and supply of energy products. An oligopoly is a market structure, which is controlled by few producers, and each of the producers has control over the market. The extent to which an industry or a market is dominated by a few leading firms is determined by the concentration ratio. It is an industry where the level of market concentration is high. In most circumstances, an oligopoly exists when there are five large firms, and the demand or sales of their products account for 60 percent of the total market. There is no specified theory that explains how firms determine the output and price under the conditions of oligopoly. If there are price wars in the industry the oligopolistic firms will produce and price their products as perfect competitive industry, at other times they will behave like a pure monopoly. The following are the characteristics of oligopoly market structure; these characteristics are also displayed by the UK energy market. First, product branding; this feature is seen when every firm in the market is selling differentiated (branded) products. For example, British Gas, EDF, E.ON, Scottish Power, Npower, and SSE firms among other small firms in the energy industry sell differentiated products in the UK energy markets. Second, entry barriers; considerable entry barriers into the industry market prevents other firms to enter the market thus enabling dominant firms to maintain supernormal profits. Various small firms may operate on the edge of an oligopolistic market, but these firms are not large enough to have a considerable effect on the market output and prices. In July 2011, the British Gas announced an increase in electricity and gas prices by 16 percent and 18 percent respectively just eight months after it increased its prices. British Gas managing director defended the increase in prices saying that the market rates for energy has increased in the global energy market, which increased the wholesale costs of the firm by 30 percent for the last one year (King 2011). While reacting to this increase in energy prices energy minister, Chris Huhne demanded change in the UK electricity market. Energy secretary Chris Huhne, held a meeting with small energy suppliers, with an objective of finding ways of breaking the dominance of the large six electricity and gas companies and help in keeping energy prices down. The plan of the minister was to abolish the entry barriers in the energy market to allow competition between small and large firms in the energy industry (King 2011). The actions of Chris clearly show that there are entry barriers in the UK energy market. Third, interdependent decision making; in oligopolistic market firms take into consideration the possible responses of their competitors to any change in output, price or forms of non-price competition. Increase of gas and electricity prices by British Gas came one month after ...Show more

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Name Tutor Course Date Institution Analyzing Case Study Introduction The essay will discuss the energy market in European Union especially in the United Kingdom. The essay will describe the formation of the imperfect market structures such as monopolistic and oligopolistic markets with attention to gas and electricity markets…
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