Business Cycle Analysis - Oligopolistic firms in Construction Industry

Business Cycle Analysis - Oligopolistic firms in Construction Industry

Introduction

The employment rate is affected by several factors such as inflation and other economic conditions. Therefore, the uncertain economic conditions pose a threat and risk to the employment rate. Construction industry, such as Caterpiller, offers a great variety of opporutnites under such prosperous circumstances. The paper aims to evaluate the impact of expanding economy with lower unemployment rate on the performance of oligopolistic firms relatd to construction industry. The paper accesses data from the recommended sources in order to draw authentic and qualitative results on the presented scenario. Finally, the paper provides final remarks on the subject matter.

Discussion

Oligopoly is a form of market structure where a relatively small number of large size firms are set in a power to dominate a particular industry. It is fairly evident that the construction industry is providing opporutnites under such prosperous circumstances. A distinctive feature of oligopoly is that a industry is governed by at least two large size firms. For instance, the large size construction company such as Caterpiller, which are controlled by small number of companies.

Scenario and Possible Outcome

An economy is booming at a relatively growing pace with lower trend of unemployment and there are certain companies pertaining to construction industry dominated by oligopolistic firms. In such case, better employment opportunities and growing economy will improve the life style of people. It will result in demand for goods and services enabling firms to enhance their production capacities. The impact of growing economy will be positive on business revenue of oligopolistic firms. These firms will optimize their construction capacities to meet the increasing demand.

Consequently, construction firms post records regarding building in the business profit to lower impact on the associated cost. It is true that prosperous economy will have positive impact on every aspect of an economy resulting in increasing prices of input and raw materials. However, dominance of oligopolistic firms makes them the only and powerful buyers, who can have firm control over price negotiations.

Moreover, they may face competition from new arrivals and businesses. It is a common phenomenon that growing economy opens doors for new businesses and entrants into the market. In order to maintain the dominance, dominant firms may negotiate and mutually agree to set a low price of offered construction products, in order to increase their productivity while recovering increase in the business costs. Such positive impact can be proved by analyzing the impact of lower unemployment rate and growing economy on the sales of oligopolistic firms.

Evidence from the US Economy 2007-2012

According to Bureau of Economic Analysis (2013), US economy is one of the most developed and advanced economies of the world. Since 1947, GDP of the US has grown at an average growth rate of 3.23% with significant contribution of manufacturing, mining, warehousing, utilities and food export (figure 1). This consistent growth has been reflective in the improving GDP per capita of the US that has mounted up to 304% of an ...