OLIGOPOLIES

Oligopolies

Oligopolies

Introduction

Economics and market competition involves the study of collusion which is common in an industry where competing companies form cooperation and strategic partnership for the accomplishment of mutual benefits which mostly involves maximizing profits and not allowing new entrants to enter into a market. The act of collusion takes place most commonly in oligopoly market or industries characterized by it which involves decisions taken by handful of companies to collude. This can significantly impact and affect the whole market. One of the most explicit forms of collusions is known as cartels. On the other hand, collusion which is not explicit or overt is called tacit collusion. (Pelkmans, 2001)

Discussion

There are number of questions related to oligopolies which need to be answered. Questions which are raised include the performance of oligopolies, questions related to its regulation and change in policies, if they lead to an effective and efficient use of the resources or if they lead to waste of resources and their inefficient use, in short, if oligopolies are good or not, and if its collusion lead to efficient use of resources or waste of resources. Other than the contestable market model, every other model of oligopoly which has been studied and examined, indicate that if there is concentration in an economy or in a market, it will lead to pricing more than the marginal cost, where as the output and the productivity will be less than or below the efficient level. If there is a case in which pricing is done above the marginal cost at equilibrium, it means that the consumers will pay for the product more than the actual cost of that product which was incurred in producing that product. If the output is to be increased, it means that the value of that product will exceed or surpass the social cost of that product, but oligopolists seek to maximize profits and therefore, they get advantage and benefits by not increasing the output. In the oligopolistic industry, there are barriers to entry which created hurdles and obstacles for new resources, capabilities and capital to respond to the profit signals. In conditions which are competitive, markets which have intense competition, upward trends in the profits and positive increment in the margins will attract new entrants as a result of which, production will increase. However, it does not happen, and is not common in industries termed as oligopolistic. The issue ...