Is the Watch Industry dominated by an Oligopoly*, which is beneficial

Is the Watch Industry dominated by an Oligopoly*, which is beneficial

to both firms and consumers?

*= See glossary for meanings.

Hypothesis

==========

I believe that the watch industry is dominated by an oligopoly, which

is beneficial to both firms and consumers. The watch firms are both

price makers*, which is good for the watch firms, and price takers*,

which is good for consumers.

Aim

In this investigation I shall be examining the watch industry. I will

use a Mintel report of the watch industry produced in 1995 and

information worksheets to test my hypothesis.

Findings and Application of Theories

Five companies, or the 'C5 ratio', dominate the watch industry. They

have 40% of the market share* (see fig.1.). Zeon Ltd. is the market

leader*. There have been no recent take-overs or mergers in the watch

industry, so the market leadership is slight. The growth of the

industry has been organic*.

GRAPH

This representation makes the watch industry an oligopoly, as opposed

to being perfect competition*, imperfect competition, or a monopoly*.

There are a number of reasons why the watch industry is an oligopoly.

Firstly are there barriers to entry* as opposed to free entry*. One

barrier to entry for other prospective watch manufacturers is

economies of scale*. The larger, more established firms have a number

of cost advantages, such as being able to buy raw materials in bulk or

borrow large sums of money. Their production costs are therefore

cheaper and therefore they will probably be able to sell their watches

at a lower price than smaller, newer firms. Another barrier to entry

is branding. All of the firms in the oligopoly have very established

names in the...

... middle of paper ...

...a novelty/ luxury item. The success of this strategy

depends on maintaining low costs at low volume on a high quality image

with few or no competitors.

- Price Makers: In a monopoly situation where there is only one, or

very few suppliers. The industry can set its prices at whatever level

they want without the chance of being undercut by competition (because

there is none).

- Price Takers: In an industry where there is a lot of competition

(ideally perfect competition), the sellers must have the prices of

their product low in order to sell them. If they did not have low

enough prices, customers would go elsewhere as there will be many

substitutes that are cheaper.

Bibliography

1) The Watch Industry Mintel Report- 1995 (obtained from Sheffield

Hallam University's 'Adsett's Centre')

2) Business and Economics class worksheets