ECONOMIC ANALYSIS

Economic Analysis

Economic Analysis

Introduction

Oligopoly means mastering the market by a few large firms in the industry, as it differs from perfect competition. The market has independent companies that control the market prices due to there influences on the overall industry and consumers. In such conditions, smaller companies, in order to survive, they adapt their actions to the conditions imposed by these companies (Perloff, 2008).

The main feature of the oligopoly market is that peculiarity forms circumstances in which the decisions of some holding companies affect the decisions of others. The main decision variable is the choice of the supply, the choice is made taking into account the decisions taken by competitors or-expectations of their behavior (Perloff, 2008). Oligopolisty market place are therefore highly interconnected and influence the company in the surrounding, as there are linkages between firms, market participants, and competitors.

Disucssion

There are countless examples of oligopolistic markets. Indeed, the dominant feature of the some economies is the high degree of oligopoly in their industries as examples are the oil industry, automobile industry, the industry of television sets, refrigerators, stereos, cement, soap, toothpaste , and countless others (Pindyck, 2000). The aim of the paper is to compact with the firms strategic reactions to deal with a threat mode in the oligopoly determining competitive modes that form under the oliogopoly market..

Firms Competing in Oligopoly

An oligopoly can be used in oil refining market because of the companies dominance in the market. Let us consider there are two major firms in this market Firm A and Firm B that control the overall market for oil refining in the country and taking other companies, which must be subordinate to them are the following refineries: Firm X, Firm Y, and Firm Z.

All the contributing firms in the oligopolistic market produce the same product such as, refined petroleum products, or highly differentiated products such as refined jet fuels. Generally, entry of new firms into an oligopoly is really difficult because of the economic barriers such as need to have a large capital, or due to technological or legal barriers. However, it is possible for the firms to enter into the market but with all possible influences in the field.

Prices Determination in Oligopoly

The oligopoly market is dominated by non-price forms of competition through advertising, improving quality, attractivness and introducing new products, the use of convenient for customers of forms and conditions of sale.

In an oligopolistic market, the prices are fixed in two ways (Perloff, 2008). Decisions about the shifts in prices can make the biggest changes, as the dominant firm in oligopoly such as Firm A and B maintain to be the price leader. Whereas, others firms such as Firm X, Y, and Z have to consider the prices, as the size of the set and adjust their behavior accordingly. Leadership can reach the manufacturer that has the lowest cost or for example the type of production dominated.

Prices can also be determined as a result of a more or less formal agreements between ...