In this hypothetical case, the 3-firm concentration ratio is Further examples Banking The Herfindahl — Hirschman Index H-H Index This is an alternative method of measuring concentration and for tracking changes in the level of concentration following mergers. If the index is belowthe market is not considered concentrated, while an index above indicates a highly concentrated market or industry — the higher the figure the greater the concentration.
Oligopolies are price setters rather than price takers. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market.
High barriers of entry prevent sideline firms from entering market to capture excess profits. Product differentiation Product may be homogeneous steel or differentiated automobiles.
Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price,  cost and product quality.
Interdependence The distinctive feature of an oligopoly is interdependence.
Each firm is so large that its actions affect market conditions. Therefore, the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves.
For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant.
This anticipation leads to price rigidity as firms will be only be willing to adjust their prices and quantity of output in accordance with a "price leader" in the market.
This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive PC market there is zero interdependence because no firm is large enough to affect market price.
All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about.
In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors. Non-Price Competition Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition.
Oligopolies in countries with competition laws[ edit ] Oligopolies become "mature" when they realise they can profit maximise through joint profit maximising. As a result of operating in countries with enforced competition laws, the Oligopolists will operate under tacit collusion, which is collusion through an understanding that if all the competitors in the market raise their prices, then collectively all the competitors can achieve economic profits close to a monopolist, without evidence of breaching government market regulations.
Hence, the kinked demand curve for a joint profit maximising Oligopoly industry can model the behaviours of oligopolists pricing decisions other than that of the price leader the price leader being the firm that all other firms follow in terms of pricing decisions.
As the joint profit maximising achieves greater economic profits for all the firms, there is an incentive for an individual firm to "cheat" by expanding output to gain greater market share and profit.
In Oligopolist cheating, and the incumbent firm discovering this breach in collusion, the other firms in the market will retaliate by matching or dropping prices lower than the original drop.What are the main conditions necessary for price discrimination to work?
Here are the main conditions required for discriminatory pricing: Differences in price elasticity of demand: There must be a different price elasticity of demand for each group of ashio-midori.com firm is then able to charge a higher price to the group with a more price inelastic demand and a lower price to the group with a.
In the case of McDonald’s, Credit Suisse estimates that the company’s foot traffic in the US fell around 11% from to so the January drop in prices could be a further attempt to. Price elasticity determines the rate of response of demand in quantity in response to a change in price.
Income elasticity of demand on the other hand measures the rate of response of demand in quantity because of change in consumer income.
Our 21 Room Bed & Breakfast is tucked away in a secluded suburb of Cancun, Quintana Roo - perfect for the guest looking to get away from the hustle and bustle of city life. A good example of price elasticity of demand. Jim Riley 4 th March A great news article about the problems faced by Hovis bread would make a useful example of price elasticity of demand for business students.
Take the case of our regular purchase from Tesco online: Hovis Best Of Both Medium White g. Oligopoly Defining and measuring oligopoly.
An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it is said to be highly concentrated.