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Economic for Business: Monopoly and Oligopoly - Essay Example

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Economic for Business: Monopoly and Oligopoly

the existence of blocked entry resulting to lack of competitors because of market barriers (Sloman and Sutcliffe, 2001).
Relative to monopoly, an oligopoly is a market situation that exists when: 1. there are a limited number of sellers; 2. the relationship between the limited sellers are interactive because the decision of one affects the others; and 3. the sellers may control price and market entry through collusion or they may engage in price wars (Sloman and Sutcliffe, 2001)). UK supermarket industry where Tesco, Sainsbury, Morrisons and Asda comprise a firm-concentration ratio of 70 percent and the UK brewery industries with a firm-concentration ratio of 85 percent are examples of Oligopoly.
Compared to monopoly and oligopoly, a cartel is comprised of legally independent sellers and producers grouped together to control price, limit supply and limit competition. If a centralized institution is created to coordinate the actions of several independent local or regional monopolies then the arrangement creates a cartel. If there is a formal agreement to collude in order to fix price by oligopolies then this creates a cartel. (Sloman and Sutcliffe, 2001) De Beers diamond, 1999 Vitamin cartel, MLS service, and OPEC are some of the known cartels.
Monopolies are expected to sell their goods at a higher price due to lack of competition. This may discourage some consumers to buy but majority are willing to pay for the unique good or service provided the price remains more or less stable such as in public utilities providing necessities to the market. In the case of public utilities, monopoly is ideally a preferred market situation so that price is controlled and supply is accessible to majority of consumers. Oligopolies benefit consumers in cases of price wars because the consumer is able to purchase goods and services at low prices (Sloman and Sutcliffe, 2001).
It is traditional to divide industries into categories according to the degree of competition that exists between the firms within the industry. There are four such categories. At one extreme is perfect competition, where there are very many firms competing. Each firm is considered as so small relative to the whole industry that it has no power to influence the prices of certain products or services.
At the other extreme is monopoly, where there is just one firm operating in the industry, and hence no competition from within the industry exists. In the middle emerges monopolistic competition, wherein there are quite a lot of firms competing and where there is freedom for new firms to enter the industry and oligopoly, where there are only few firms and where entry of new firms is restricted. The market structure under which a firm operates will determine its behavior. Firms under perfect competition behave quite differently from firms that are monopolistic, which behave differently again from firms under oligopoly or monopolistic competition.
In a more developed countries oligopolies are common in many sectors of their economy such as automotives, steel production and common goods. In terms of competition, oligopolistic competition paves way to a broad level of different outcomes. In some instances, firms may collude or plan to increase the price and limit their production just like in monopoly. Herein, members of an oligopoly must have a formal ...Show more

Summary

This study will explore the issues in economics and will focus on the article of Sloman and Sutcliffe entitled Economic for Business. The article explores two main issues in economy particularly in political economy and these are monopoly and oligopoly. According to the study Monopoly is a market situation characterized by: 1…
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Economic for Business: Monopoly and Oligopoly essay example
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