An Oligopoly is a market with a little figure of big participants ( David Begg and Damian Ward 2009 ) . In an Oligopoly sort of market all the participants are mutualist. This sort of market arises where there exists a little figure of comparatively big houses which are invariably wary of each other ‘s action sing monetary value and non monetary value competition. As stated above in Oligopoly all the major participants are mutualist, their competitory scheme is besides mutualist in footings of pricing of merchandise, advertisement schemes, new merchandise development etc. The nature of merchandises marketed by Oligopolists is homogenous e.g. Oil but the merchandise scope may be differentiated besides e.g. Automobile fabrication industry.
Normally Oligopolists are tendency compositors instead than tendency followings in footings of pricing of merchandises. Most of the times competition between Oligopolists leads to different result. In some state of affairss the houses may use restrictive trade practises ( collusion, market sharing etc ) to raise monetary values and restrict production in much the same manner as a monopoly ( www.wikipedia.com, accessed on 21-11-2010 ) . Some of the states make a formal understanding for such collusion and such sort of formal understanding is termed as ‘Cartel ‘ . The most common illustration of trust is ‘OPEC ‘ i.e. the Organisation of crude oil exporting states.
Key characteristics of Oligopoly –
Entry Barriers – Entry barriers can be defined as ” an obstruction to house ‘s ability to come in an industry ” ( Pg.129 David Begg and Damian Ward 2009 ) .
The types of entry barriers can be of following types viz.-
1 ) Innocent / structural barriers – Innocent or structural entry barriers can be defined as type which is exogenic in nature and does non happen wittingly by the companies. Innocent / structural barriers occur due to alter in engineering, consumer affinity towards the goods or govt intervention
.
The Minimum efficient graduated table ( MES ) is the minimal graduated table of operation that is needed in order to run at lowest cost. If the MES is really high, it can move as barrier to entry ” . ( Source – Pg.129 David Begg and Damian Ward 2009 ) . MES can be high because of cost of investing on installations or it can be created by agencies of trade name edifice
2 ) Strategic/ behavioral barriers – Strategic or behavioral barriers are endogenous in nature and can be defined as the “ behavior by incumbent houses to do entry less likely ” ( Pg.160 Economics by David Begg ) .Interdependence among the houses – As mentioned earlier besides that Oligopolists are mutualist so as to maximize their net incomes. Mutuality between two companies is a must to keep oligopoly as if one company takes any independent determination that can harm both the companies in footings of net income devising.
Concentration ratio – When we talk about oligopoly we should ever maintain the things in head that Oligopoly includes a extremely concentrated industrial construction where the whole competition is limited between a little Numberss of rivals.
Determination of concentration ratio can be done by finding the entire market portion of N figure of largest houses runing in country.
Game theory – Game theory depicts the competitory behavior between two market participants. If both the participants will join forces with each other so merely they will acquire the long term ends. But in short footings if participant A will make darnel with participant B so he will decidedly acquire benefitted and for the short term additions Player B should besides vie in this mode merely to acquire benefitted. Nash equilibrium is a phenomenon which occurs when each participant does what is best for them, given what their challengers may make in response ( Pg.137, David Begg and Damian Ward ) .
Oligopoly is of two types VIZ – Collusive and Non collusive oligopoly
Collusive Oligopoly – Collusive oligopoly can be defined as “ when Oligopolists agree ( officially or informally ) to restrict competition between themselves. They may put end product quotas, hole monetary values, limit merchandise publicity or hold non to poach each other ‘s markets. ( Pg.237 John Sloman and Mark Sutcliffe ) . e.g. – Trust.
Source – www.tutor2net.com
The trust leads to maximization of net incomes if its behavior will be like Monopoly. Graphical illustration of this status is as follows
Above cited, market demand curve is shown with the matching market MR curve. The trust ‘s MC curve is horizontal amount of the MC curves of its members. Net incomes are maximised at Q1 where MC=MR. The trust must there for set a monetary value of P1 ( at which Q1 ) will be demanded. ) ( Source — Pg.237 John Sloman and Mark Sutcliffe )
Non Collusive Oligopoly – When Oligopolists do non undergo any sort of formal or informal understanding the status is known as non conniving oligopoly.
Theory involves the survey of rational schemes in little group state of affairss ( Pg. 105, Graham Donnelly ) . Game theory involves the behavior in strategic state of affairss, orA games, in which an person ‘s becomes successful by the stairss or picks taken by others.
Kink demand curve: Kink demand curve reflects the pricing behavior. It explains that if one market participant increases the monetary value so it is non necessary that others will follow the same tendency by increasing the monetary value ensuing into serious net income minimization to the participant with hyperbolic cost.
On the contrary if one market participant decreases the monetary value so everybody will follow the same tendency so as to maintain the clients.
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Game theory – Game theory depicts the competitory behavior between two market participants. If both the participants will join forces with each other so merely they will acquire the long term ends. But in short footings if participant A will make darnel with participant B so he will decidedly acquire benefitted and for the short term additions Player B should besides vie in this mode merely to acquire benefitted. Nash equilibrium is a phenomenon which occurs when each participant does what is best for them, given what their challengers may make in response ( Pg.137, David Begg and Damian Ward ) .
Appraisal of the extent to which the industry is an oligopoly and the extent to which the industry could back up monetary value repair.
Oligopoly in Hotel Industry ( U.K. Scenario ) –
Introduction –
In continuance with oligopoly in U.K hotel industry we can state that there are broad assortments of hotels in U.K. offering different types of cordial receptions. A hotel can be defined as an constitution that provides different type of installations right from fooding to lodging to the clients.
U.K.hotel industry is a good developed industry. To understand the phenomenon of Oligopoly we should hold the thought of market portion of top hotels in U.K. With the aid of our understanding approximately assorted other factors as market portion of top hotels, concentration ratio etc we will discourse the characteristics of oligopoly in bing U.K. hotel industry. This portion of assignment will besides dwell the assorted features such as net income maximising conditions, ability to put monetary value, entry and issue barriers, net incomes etc.
Market portion – As per the definition of Oligopoly says that it is a market with a little figure of big participants. If we go through the large market participants in U.K. hotel industry we can really good watch the undermentioned kingpins –
Best Western, Whitbread, Compass, Six continents, Corus and Regal, pick, Hilton etc.
Oligopoly in U.K. Hotel Sector –
Beginning -www. tutor2u.net ( Accessed on 22-11-10 )
Concentration ratio — Concentration ratio in Oligopoly includes a extremely concentrated industrial construction where the whole competition is limited between little Numberss of rivals.
Determination of concentration ratio can be done by finding the entire market portion of N figure of largest houses runing in country.
By accessing market portion informations of hotel sector we can really good find the concentration ratio.
3 steadfast concentration ratio = 20.2+18.5+10.7 = 49.4
5 steadfast concentration ratio =20.2+18.5+10.7+10.2+6 = 65.6
7 steadfast concentration ratio = 20.0+18.5+10.7+10.2+6+5.1+4.9 = 75.6
Entry barriers – Entry barriers in hotel industry have a really major function to play every bit high entry barriers restrict other houses to come in and therefore existing houses make a good net income.
High entry barriers for new houses are really much beneficial for bing houses as if there will be high entry barriers it would be slightly hard for new entrants to come inside that circle.
For new participants entry barriers are really rigorous bing participants besides have a really tough issue barriers because of high capital investing, sunk cost etc.
Some of the entry barriers for fledglings in cordial reception industry are as follows –
Advertising – Ad is a type of entry barrier which is a must for a new entrant and since a immense cost is involved in advertisement it becomes hard for a house with low advertisement budget to last.
High capital investing – In today ‘s universe where every new undertaking requires a really heavy capital investing, new entrants found hard to get by with the high capital demand.
Government ordinances – Rigorous authorities ordinances are compulsory in cordial reception industry therefore authorities ordinances act as entry barrier for a new house.
Land resources – It is really indispensable for any concern to concentrate on a good land resource or topographic point to guarantee convenience to footfall of clients.
Existing market participants can besides make some mischievousness for the budding concerns as to play with the monetary value variably, conniving with regulative governments to make hurdlings for new concerns etc.
Collusion – In U.K. hotel industry at that place can non be any formal understanding between two pudding stones which is illegal and known as trust.
Tacit collusion – This is type which involves an informal apprehension between two market participants to command the things and eventually barometric monetary value leading will happen in which for the benefit of whole industry one participant will take enterprise and remainder will follow the tendency. .
The demand of hotels in footings of figure of client footstep will follow Kink demand graph. As one participant increases the cost it is non necessary that every participant will follow the tendency and as a consequence the first participant will be a sick person in footings of loss of net incomes and on the contrary if one participant decreases the cost every other participant will besides make the same.
Conclusion – Hotel industry is a typical oligopolistic industry. Once once more in the decision portion if we go through the definition of Oligopoly that clearly states that Oligopoly is a market with a little figure of big participants, hotel industry is an industry with a little figure of big participants. They are little in figure due to high entry barriers and high issue barriers.
Concentration ratio in hotel industry is high which proves the status of Oligopoly among the industry.
Hotel industry follows kink demand graph which is premier feature of oligopoly.
Finally hotel industry do non follow trust but silent collusion occurs between the participants so it has been proved that hotel industry is a typical illustration of Oligopoly.
Mentions
Begg, D, Ward, D 2007, A economic sciences for concern, A 2ndA edn, A McGraw-Hill, Berkshire
Oligopoly, www.wikipedia.com, viewed 21-11-2010
Begg D, Fischer S, dornbusch R ( 2000 ) . Economics 6th edition McGraw-Hill Berkshire
Sloman J and SutcliffeM ( 2001 ) Economics for Business 2nd edition Pearson instruction Essex
www.tutor2net.com viewed 21-11-2010
Donnelly G ( 1991 ) A foundation in economic sciences, Stanley Thornes Publishers Ltd.Cheltenham
Nellis JG and Parker D ( erectile dysfunction ) ( 1992 ) The Essence of Business Economics, Prentice hall Hertfordshire
