Monopoly

Monopoly

The Monopoly

a) Using Australian examples describe the characteristics of the two of the following forms: Monopoly Oligopoly

The main characteristics of an oligopoly are:

· The market is dominated by only a few companies, which are relatively large.

· The production of identical products which are similar.

· There are significant barriers to entry.

· The interdependence of production decisions within the market.

An Oligopoly market exists in which a small number of firms dominate the supply to an entire market. Each firm producers a very similar product. In Australia the oligopoly is the major market form. It is because Australia is so small market located far from overseas markets and this thus requires producers to be larger, so they are more competitive. There are hundreds of examples of oligopolistic industries, e.g. cars (Holden), breakfast cereals (Kellogs)

This market form does not only depend on the larger producers, but the recognition of their interdependence, the action of one producer will affect the actions of others and each oligopoly firm watches their rivals closely. Oligopolies compete fiercely for market share, therefore the competition for existing or new consumes is intense, as each producers products are very similar. As a result oligopolists have little influence over price. For example Shells petrol is very similar to Mobil petrol, therefore these two companies watch each other closely.

Oligopoly firms attempt to make their products different in the eyes of consumers. This can be achieved in many different ways. Firstly by providing quality improvements in goods or services such as electrical sound equipment, secondly by different packaging or wrapping, thirdly by bonus offers or prizes on purchase, for example Just Jeans offering free sunglasses. The more product differentiation among oligopoly firms, there is a more chance of each firm has being independent from its rivals when setting price or output.

It is hard for new firms with a small market share to enter the oligopoly market and produce enough to make the product cheap for consumers to buy. The small amount of large firms can often produce large amounts of quantity to provide for all consumers to purchase. It is difficult for new firms to win market shares form existing producers, particularly if those firms have large advertising budgets, licenses, design patents or restrict access to raw materials on one way or another.