Is an oligopolistic market structure an example of market failure?

Is an oligopolistic market structure an example of market failure? Introduction One constructive approach of categorizing a market is by dividing it in terms of the number of firms on the supply side of the market and the buyers concentration on the demand side. Oligopoly represents one of the market structure where there are a very few firms on the supply side and a huge concentration of buyers on the demand side. As the buyers cannot affect the market conditions, they are going to adopt it as such and the supplier will be busy in anticipating the rival behavior. Oligopoly looms large in industries of steel, petroleum, automobiles etc. Many industries can operate geographically as oligopolies. For example banking in a small town operate as oligopoly since there will be one or two banks in the area and the residents will be forced to take his business to the local banks.( Friedman, 1983) Oligopoly a complex market structure Oligopoly is virtually a big business. Under this market structure, the rivalry takes on its worst form. Product innovations, aggressive advertising and innovative marketing tactics are frequently applied to outweigh each other. Oligopolistic market structures are the most difficult to analyze as they are highly interdependent and interwoven, where moves and countermoves are taken rapidly. For example a simple action by Ford may lead to a reaction by General Motors, which in turn cause a readjustment in Fords plan, thereby modifying GMs response and so on. So anything can happen anytime in oligopoly. There are few models that highlight oligopolistic behavior. They are: Cartels A case arises in monopoly when all the firms attempt to promote interdependence and they all mutually agree to set price and output. The firms through their mutual coordination try to create a giant monopoly. OPEC (Organization of Petroleum Exporting Countries), is an example of a cartel platform. Price leadership and Tacit Collusion It is an arrangement in which one or two firms make an arrangement for the pricing for the entire firm. Other firms are forced to follow the same price pattern although no such agreement exists in the industry. For example: In the infant formula industry, Abbot laboratories, Bristol Myers Squibb and American Home Products deliberately set their prices closer to each other to dominate the industry. The Kinked Demand Curve This model elaborates the stickiness in pricing in an oligopolistic structure. It has been hypothesized in this model that if for example, a firm X lowers its price in an oligopolistic market, the rival will be forced to lower its price to in order to avoid the loss of its market base. The demand curve dd is thus the relevant curve in case of a price reduction. dHowever, if the firm X goes for a price increase, then the case wont be the same. The rivals will not imitate this time, and would continue to enjoy the customer support as they would flee the firm X products. In this case the demand curve would be DD. The firm then tries to remain in a segment of the elastic demand curve between dd and DD. The true demand curve is represented by DAd, known as the kinked demand curve which silently points out the fact heads you lose, tails you lose (Baumol and Blinder, 2009) D A Price 8 (Competitors prices are fixed) 7 D d (Competitors respond to price changes) 0 Quantity per year 1,400 1,100 1,000 Game theory and the Oligopoly Game theory has been formulated to understand the behavior of the firms in an oligopolistic market structure that do not work on a collaborated output and pricing. The underlying assumption is that the large bossy firms are like players in a game of poker. They make the moves of lowering or increasing the price, to advertise or not to advertise, to discount and so on, based on their rivals move. Understanding the payoffs can put a firm in a better position to compete with its rival and be in a profit maximizing and rational position. For example the game between two coffee shops is illustrated as below: C:Documents and SettingsAnumDesktop4th assignmentUnderstanding Oligopoly Behavior a Game Theory overview Economics in Plain English_filesgame-theory-1.jpeg Source: Welker, J. (2009).Understanding oligopoly behavior-A game theory overview. Available from: http://welkerswikinomics.com/blog/2009/12/15/understanding-oligopoly-behavior-a-game-theory-overview// According to the above figure, both San Francisco coffee and Starbucks is following a dominant strategy. They are working up to maximize their outcome through advertising, ignoring what their competitor does. If S.F advertises, Starbucks earns profit ($12 vs. $10) through advertising. This means the pay offs are the same. Since both firms are enjoying profit through advertising they will do so, though the total profits are less in case when both are advertising, as compared to when they are not advertising. But such a condition would be a condition of instability, as to advertise is likely to be beneficial for both. So we say that advertise/advertise is Nash equilibrium, as at this stage none of the firm is going to change its strategy since it is bringing incentive to both (Jason Welker, 2009). Market failure due to Oligopoly Keeping in view the above theories that tries to explain oligopolistic behavior, the market failure due to oligopoly can be attributed to a various causes. Inefficiency, instability and indeterminacy brought about by oligopoly may result in a market crash. The firms supremacy is established as the capacity is established more and more, but little is produced in order to create artificial barrier to entry. The competitors compete on the basis of non pricing factors such as heavy advertising, which gives more hold up to the artificial barrier to entry. Prices are well above cost and price discrimination prevails. Some of the firms also engage in self-regulation to preserve their own profits and market share that further detoriate the situation (Grewal and Kumnick, 2006). Oligopolistic firms output and prices substantially differ from what is socially accepted from them. It is also believed that the misleading advertisement by the large firms also misleads the consumers and compels them to buy products that they do not want. They impose political and economic power and hover over the mind of the consumers working like an invisible hand. Market Form Number of firms in the market Frequency in Reality Entry Barriers Public Interest Results Long Run Profit Equilibrium Conditions Oligopoly Few Produces Large share of GDP Varies Varies Varies Varies Source: Economics: Principles and Policy By William J. Baumol, Alan S. Blinder MC=MR applies for a profit maximizing firm, under equilibrium. However, in oligopoly, MC is usually unequal than MR mainly because in oligopoly the firms are seeking to adopt strategies in accordance with the game theory, or they look for techniques such as increasing sales for profit maximization as their ultimate goal. Conclusion In a perfectively competitive market place the behavior of the firms automatically lead to a maximization of consumer benefits through an efficient allocation of resources. In oligopoly however, resource allocation is usually is not well set, more focused is paid on restricting output in an attempt to maneuver prices and profits. In an oligopoly everything is possible, can happen anytime anywhere, so the economists are still unable to clearly predict its behavior. Besides, its ability to lead the market down, some economists are of the belief that oligopoly has made a significant contribution towards the economic growth in the past two decades resulting in an increase in the average income of the rich countries.(Baumol and Blinder, 2009). Question two What are the implications for management of businesses in such structures? Introduction Oligopoly is a market characterized by few firms. Managers of a firm in such a structure know that their firm enjoys a market power. But the other players also have their share of power too. If the managers take the right course of action, properly assessing the behavior of their rivals in the industry, they are likely to make a profit. Strategic behavior Strategic behavior refers to the firms ability of proper consideration of their market power and awareness of their rivals move. Strategic behavior occurs in oligopolistic structures where there is less product differentiation and a competitive industry exists (Taylor and Weerapana, 2009) Implication for the managers The most important implication for the managers regarding oligopoly is the pricing practice on the basis of mutual interdependence. In case of monopoly, the absence of competition enables the managers to follow the MR=MC role to maximize its profit. Simply following the MR=MC isnt just enough. Example Consider, for example the case of proctor and gamble, where the manager hires a consultant for the thorough analysis of the cost, structure and demand. After a detailed analysis of the structure of the body soap products, the manager follows the MC=MR rule and set the retail price at $1.99.In a sudden move, the competitors Colgate-Palmolive , Lever brothers etc set the price of the comparable product 10 to 15 below to that of proctor and gamble. What the manager is likely to do? Either he can go for advertising and heavy promotion to compete against the lower prices of the competitors or can lower its prices down. Or he can simple do nothing if he is confident enough of the strong loyalty that his brand enjoys among consumers. The point is that, that pricing in oligopolistic structure cannot be done without taking into account your competitor. This is the essence of mutual interdependence (Young and McAuley,1994) The second implication for the managers is to understand that it can be extremely difficult to make money in a competitive market. Firms are required to be as much cost efficient as possible because they cannot control the prices. The managers are supposed to be vigilant enough to be able to spot opportunities and enter the market before the others could enter. They should be able to make their place before the demand gets high enough to support an above normal price. A situation could arise in oligopoly, where the managers in a firm become so successful in beating up the competition that the firm turns into a monopoly, or the one that can exercise monopolistic power. Such a case happened with IBM when In 1969, the firm dominated the computer market so much so, that the department of Justice had to issue an antitrust suit against it (Keat, Young and Benerjee, 2009) Global implication for managers The managers should keep in mind that the process of benchmarking in an oligopolistic structure strategy formulation should be done keeping in view both domestic as well as the global competitors. For example AT T communications not only took into account Northern telecom but also Siemens, Ericsson and NEC and Fujitsu. Many of the firms that refuse to take challenge from the foreign firms are likely to face consequences. Like many American firms got a serious blow from their Japanese competitors in the past 20 years. Companies like IBM and Caterpillar enjoys success because they established a strong hold in the Japanese market well before time. The oligopolistic structure also highlighted the importance of alliance for the managers. Alliances enable the firm to acquire technology from the rival firm. Whilst the acquisition of the technology can be a source of benefit for the firm, the firm giving up the technology can face causalities ( Yoffie,1993) Conclusion The managers of an oligopolistic market structure have to take into account several aspects in their decision making. The managers are plunged into complex pricing decision. They take into consideration the three Cs of Cost, customers and competition in their decision making. Price wars were common in an oligopolistic market, but they are becoming less frequent with the passage of time, mainly due to the realization of the managers. Managers have understood, through their bitter experiences, that the price wars are costly and do not bring any benefits. They chose to compete on the advertising and on product variations. So they have chosen not to compete on prices and have found for themselves a path of mutual advantage.

Weapons of the Middle Ages :: History

Weapons of the Middle Ages Have you ever wondered what kinds of weapons were used in the middle ages? Or have you wondered how they used to slash and bash through the heavily armored knights while being attacked by flying arrows by the longbowman? Well here are the answers There were a wide variety of weapons in the middle ages, one of which was the club. The club was mainly used to crush bones or fracture them. It was made of a light wood with a metal tip on the end and usually had spikes on them to inflict more damage. The club is the first melee weapon ever made and started in the Stone Age to kill deer or wild boar. As ages went by the club became less effective. After about 1400 A.D. the club was very rare to find in battle. What was interesting about the club is that it could easily be changed into a short-handled ax. All they had to do was either cut or take off the tip of the club and attach a sharp blade. The reason they sometimes changed the club into a short-handled ax, was because it could be throw n easily and inflict some pain, where the club when thrown, it was hard to throw and it inflicted little pain and damage. Another very useful weapon was the spear. The spear was a skirmisher’s best friend. A skirmisher was a soldier that carried around a bag full of spears. To keep from giving too much weight, they made the spear for the skirmishers with very lightweight wood, and a small pointy spearhead. The skirmisher’s job was to take the spears and throw them at a long range. The difference between a bow and arrow and a spear was that the spear could easily be turned into a melee weapon. In fact, when a skirmisher had only one spear left, he took the spear, left the bag, and went melee style and went into the battle. The first spear was simply a sharpened rock tied onto a long stick, which was in the Stone Age, and wasn’t used for killing people; it was used to kill animals for food, usually. Probably the most common weapon, was the sword. All kinds of swords, the standard sword, which was just a regular sword, the dagger, or knife, yes it was a type of sword, mainly a backup sword used if a soldier’s weapon was dropped, and the great sword, which was a huge sword that can only be used in control if the soldier used two hands.

Types of Reinforcement

People have been using the theory of reinforcement even though they have not properly studied this theoretical concept. They have been employing this theory to strengthen the response for a particular stimulus or environmental event (Huitt and Hummel). Reinforcement theory generally states that the frequency of eliciting the same response will likely increase if it is followed by a reinforcer. The probability of repeating the same behavior in the future is dependent on what occurs after the individual engages in that behavior (Malala, et al. ). There are four types of reinforcement.Each type of reinforcement is distinguished by the kind of stimulus presented after the response. In positive reinforcement, for instance, a positive stimulus is presented after a certain response to increase the frequency of that response of behavior (Malala, et al. ,; Huitt and Hummel). The positive stimulus usually comes in the form of rewards. Positive reinforcement has been used in school settings to reinforce positive attitude towards studying. For example, academic awards such as medals and certificates are given to students who excel academically or in a certain field such as sports.While the previous example used a tangible positive reinforcer, it could also be intangible. To cite an example, according to Kobus and her associates (48), the praise, support, and encouragement of teachers and significant others (e. g. , parents) motivate grade school students to work hard and increase their self-efficacy (i. e, confidence in one’s capability). Positive reinforcement has often been used by parents as well. They reward their children with a reinforcer such as money for their hard work in school or for cleaning their room.The concept has also been applied by companies for their employees. Salary increase and promotion, for example, are awarded to hardworking employees for their outstanding performance. On the other hand, in negative reinforcement, the reinforcer, which is s omething negative, is withdrawn after the response. Repetition of this phenomenon will increase the occurrence of the response. This is usually observed when a person wants to avoid the negative reinforcer (Huitt and Hummel). For instance, children obey the house rules so that their parents will not get mad at them.In this example, the negative reinforcer is the anger of the parents while the response is the obedience of children. At work, employees meet their requirements and deadlines to avoid being reprimanded by their boss. Most people think that negative reinforcement and punishment is the same, which is a misconception. While negative reinforcement elicits a positive response due to the removal of the negative reinforcer after the response, punishment lessens the frequency of a response or behavior by presenting a negative stimulus after the response (Huitt and Hummel).Punishment has been used at home, in school, and in the workplace. For example, at home, parents ground their children when they do not come home at the time agreed. In school, punishment is imposed to discipline students. A simple example of this is reprimanding noisy students for disrupting the class. Punishment has been a system adopted in schools in the form of disciplinary policies where punishment for specific types of school offense are indicated (Gaustad 3). In the workplace, an example of punishment could be reducing the salary of employees when they do not report to the office without filing a leave.As punishment, they will not be paid for the days they did not come to work. The fourth type of reinforcement is extinction. In extinction, the frequency of a response or behavior is weakened when the reinforcement of a previously reinforced behavior is removed (Huitt and Hummel). To cite an example, in the field of psychology, extinction learning has been used in treating disorders such as anxiety disorder. The goal of the treatment is to extinguish fear by teaching the patients that the stimulus they fear no longer results in harmful consequences (Anderson and Insel 319).For instance, the patient is exposed to a previously feared event associated with an unpleasant outcome to get him or her accustomed to the event until he or she does not fear it anymore. Extinction can also occur in a corporate setting. When a company stops giving bonuses to hardworking employees, they may lose motivation to work hard, resulting in a decline in productivity. Based on the examples stated earlier, it could be concluded that reinforcement affects the behavior of individuals, children and adults alike.Reinforcement can either increase or decrease the frequency of a certain behavior depending on the stimulus or reinforcer presented (or removed) after the behavior. Hence, it could be inferred that behavior can be modified according to the pleasantness of the reinforcement that can be experienced for doing a certain behavior. For example, an individual’s positive or desired b ehavior can be maintained with positive or negative reinforcements, while his negative or unwanted behaviors can be extinguished through punishment or extinction.

The Corruption of Downloading Music - 832 Words

Digitally illegal music file sharing is now mainstream. But should it be legal to those who have broken the law against the music industry and its artists? More specifically by RIAA the criminal can be charged by up to five years of jail time and fines up to $250,000. Some people agree that music files should be digitally shared, so everyone can have easy access to their favorite music without spending a substantial amount of money. But not everyone agrees with this idea. Some people believe that music file sharing should be illegal since record companies and artists have lost an enormous account of income because of the drops of the sales. There is a variety of different points of aspects on if digitally music file sharing should be illegal or not. There are many people ,including artists and people related to the music industry business, that they are totally against music piracy because of morals and economic related issues. 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