Name:
School:
Course:
Lecturer:
Date:
Starting a Company in Various Industries
Industry A
Industry A is an oligopoly with a low concentration. The oligopoly setting is seen in the fact that the industry comprises of only twenty producers, reflective of a small number of suppliers as opposed to the free enterprise that bears numerous sellers. Additionally, a thirty percent concentration level is indicative of low production levels; the ratio means that the twenty industries only constitute thirty percent of the entire output realized within the given industry (Mukherjee, Mallinath, & Amitava, 2004). Note that concentration measures comprise of two approaches, with the first centering on the joint market share present within the four largest trading institutions whereas the second centers on eight institutions. Within this discussion, we will presume the four-industry measure. Reverting to the earlier data, the thirty percent measure would therefore be interpreted that the four largest companies bear only thirty percent of the industry; the rest of the sixteen industries comprise of the remaining seventy percent. This is indicative of the low oligopoly power within the setting.
Some notable features within this industry would be, for instance, high competition amongst the players as affected by little interdependence amongst the organizations. This conduct is enhanced by the fact that the four industries tend to negotiate within a low market share of only thirty percent with the division only able to accord low shares and therefore the rivalry for augmented shares. Subsequently, with high rivalry, the industry has dominance practices noted by the leading industry in market ownership, therefore necessitating gaming behavior amongst the oligopoly institutions (Arnold, 2008). Therefore, as the interdependence factor is weakened, formation of cartels and other collusions is highly improbable. With each industry acting as an independent entity, competition is achieved through pricing competition as an aspect of the gaming behavior and less prominence is given to product differentiation.
Industry A reflects homogeneous production and as earlier mentioned it does not support collusive relations. Therefore, the industry association would create a kinked demand curve that permits the players to have two strategies with regard to pricing. The first would be to accord a proportionate decision by increasing prices on all the given organizations then a similar cost enhancement would be noted on all players (Arnold, 2008). If only one firm retaliates to the price modification by matching the enhanced cost, then consumers will shift to the rest of the lower priced organizations leading to market loss on one side and gain to the other players. However, if the firm decides to offer lower pricing in comparison to the other institutions, it will acquire a larger market. Therefore, with price increases within a low concentrated setting, organizations disregard the change and maintain the present levels both, within the short and long-term durations.
In conclusion, the given preceding decision reflects the fact that prices are closely connected to tactical decisions. High prices mandate lack of retaliation for market retention whereas low pricing mandates a similar approach by other organizations to safeguard a company from market movements.
Industry B
Industry B is a highly concentrated form of oligopoly. Holding the same presumption as the preceding example, the statistics indicate that the four largest companies within the industry are very dominant as they hold eighty percent whereas the other sixteen organizations own twenty percent. It is quite apparent that an imbalanced form of competition is present within the given industry as the minority tends to act as the dominant organization, as opposed to low concentration where the majority share is controlled by a higher percentage of the producers (Mukherjee, Mallinath, & Amitava, 2004). Merging tendencies are therefore present especially between the sixteen companies for the creation of more power and resources against the dominant group. This acts as a prudent decision since sole ownership acts as trivial competition factors against the largest four whereas merging to accrue the market share may be profitable. Collusion is another widespread feature within the highly concentrated setting and it bears a high congruence to the merging aspect.
With the created dependence amongst the institutions, product differentiation is highly used in the creation of competition so the products create a wider range for the consumers. Price wars are not experienced in the given industry because valuation is achieved through collusions and agreements amongst the institutions for the profitability factor. The nature of the industry further eliminates competition as decisions are made as a bloc; entry difficulties are however noted as the industry discourages more players as a safeguard to the little markets owned by each institution. Industry B may have a higher concentration level as opposed to Industry A due to the nature of product heterogeneity. Note that Industry B is reflective of the differentiated oligopoly setting where a single product is produced by different companies under different titles, for instance cigarettes (Mukherjee, Mallinath, & Amitava, 2004). As several sellers join the industry, the ability to acquire a considerable market are diminished and only the pioneering companies are able to maintain a large share this is mainly attained before more entries are noted within the industry.
Small firms operating in circumstances noted in Industry B are able to attain substantial profits through dependency associations such as collusions. This is because product values are placed across the industry as a standardized factor to ensure that all companies obtain returns from the trading activities. Promotional services thereby become quite significant to the institutions for the establishment of product awareness that enhance sales and subsequently, the profits acquired (Arnold, 2008). The combined efforts also expand the allocation function for a diversified market. Therefore, unless a small firm operates under a cartel or another form of collusion, it will definitely acquire low profits leading to low survival capability.
References
Arnold, R. A. (2008). Economics. Cengage Learning: Cengage Learning.
Mukherjee, S., Mallinath, M., & Amitava, G. (2004). Microeconomics. New Delhi, Delhi: PHI Learning Pvt. Ltd.
Use the order calculator below and get started! Contact our live support team for any assistance or inquiry.
[order_calculator]