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Oligopoly - Essay Example
An oligopoly is "a market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors". Such a situation goes quite contrary to the situation of Perfect Competition where no producer or consumer has the market power to influence prices…
In relation to costs it shows that in an oligopolistic market firms will not raise their prices because even a small price increase will cause them to lose many customers and at the same time a large price decrease by the owners will gain only a few customers because such an action will begin a price war with other firms. The curve is therefore more price-elastic for price increases and less so for price decreases. In a kinky demand curve as in an oligopoly marginal costs could change without necessarily changing the price or quantity.
Being an Oligopoly the EU car market will be experiencing an average cost curve that will represent benefits from substantial economies of size. These firms have actually become large and powerful and with the increased output they have low processing and operating costs. The EU car industry clearly has just a few ruling firms in the industry which will be watching each others pricing and output strategies very closely. ...