Product differentiation is the most distinguishing feature of monopolistic competition. Competeville thrived on innovation but struggled with overcrowding. Duoville balanced competition but flirted with monopolistic danger. They began to consider ways to learn from one another, to find a balance between the chaos of many, the rivalry of two, and the dominance of a few. One day, the leaders of these towns gathered to discuss their futures.
Impact on Economic Welfare
In this, The sellers offer homogenous or differentiated products by recognizing their mutual dependence. The new oligopoly is made up of multinational corporations that have chosen specific product or service categories to dominate. In each category, over time, only two to four major players prosper. Starting a new company in that market segment is difficult, and the few that do succeed are often gobbled up or run out of business by the oligopolies. In the Indian automobile market, OEMs often function as de facto monopolists in the spare parts and repair services market for their own brand of vehicles.
While product differentiation remains essential, it is not the sole determinant of success for firms. Creating robust service experiences and defining compelling brand identities are equally crucial. The 4-Firm Concentration Ratio, currently standing at 86.24, provides a quick glimpse into the industry’s concentration. Calculated by summing the percentage market share of the top four firms, this ratio serves as a gauge of market competitiveness.
One reason for this is the oligopolistic nature of the industry, which has a few firms dominating production and market share. In this fiercely competitive landscape, product differentiation is pivotal. The passenger car market is segmented by vehicle type and fuel type to cater to diverse consumer preferences.
A small number of big firms:
“Oligopoly is a market structure characterized by a small number of firms and a great deal of interdependence. In an oligopoly, it is foolish to cut price unless one of the two parties have a much lower cost base. Both brands, Coke and Pepsi, invest heavily in advertising and in distribution through their franchise and their own systems. Cement prices have seen a steep rise in recent months, on the back of rising costs of inputs such as power and fuel due to the ongoing Russia-Ukraine conflict.
An oligopoly is a market situation with only a few large sellers. In such type of a market structure, a cluster of companies, which can range from two or more, control the demand in the market. This means that unlike in a monopoly, where only one company is the godfather, different establishments sell similar products to cater to the consumer in an oligopoly. The price points in such a market are often reasonable due to the competition, and the costings are often similar to the companies feed off of each others’ offerings to stay within that price range.
- For example, there are only a few car producers in the Indian auto market.
- Thus, a firm enjoys partial control over price through brand loyalty.
- This was the hallmark of a duopoly—only two major competitors controlling the market.
- The Competition Commission of India (CCI) has taken on the mantle of ensuring a level playing field, striving to foster competition and eliminate anti-competitive practices.
- As such, consumers buy goods from other firms at a lower price.
A combination of increased demand following the pandemic and supply bottlenecks have put further pressure on cement prices. Pan-India cement prices have risen from ₹369 per 50-kg bag in January 2022 to ₹395 in March, a 7% increase. Exclusive supply agreements between OEMs and their authorized dealers can restrict the sale of spare parts over-the-counter, forcing dealers to obtain parts solely from OEM-approved suppliers.
From RPM to tying arrangements and exclusive supply agreements, there have been instances where OEMs have wielded their power to limit competition, resulting in higher prices and constrained options for consumers. However, regulatory bodies like the CCI have played a crucial role in curbing anti-competitive practices, striving to create a more level playing field. As India’s automotive industry continues to evolve, the balance between market dominance and consumer choice will remain a central challenge for policymakers, manufacturers, and consumers alike.
While not a single-company-dominated monopoly, oligopolies erect significant barriers to entry, effectively keeping out new upstarts from becoming competitors. To compete, firms use other methods such as offers with products to attract consumers. For example, Coke and Pepsi sell their product at the same price. But, both use aggressive non-price competition by sponsoring different games and sports. Here, Interdependence means that the firms are affected by other firms’ decisions. In this market, a small number of firms compete with each other.
Collusive Oligopoly is that market in which firms cooperate with each other in determining the price. Further, they follow a common price policy and do not compete with each other. In other words, it is a form of market in which there are few firms in the market and all decide to avoid competition through a formal agreement. In this, the Price and output of the member firms are fixed as a collective/ cooperative decision. Sometimes, A leading firm in the market is accepted by the cartel as a price leader. Members of the cartel accept the price policy as specified by the price leader.
Oligopoly market Examples In World
In the automotive industry this refers to the companies that manufacture the final product – that deal with the final release of the vehicle to the market. Mandated tie-in arrangements without clear and objective justifications can undermine the principles of fair competition. The car owner may find themselves locked into data plans that are excessive or unsuitable for their needs, as they have no alternative but to opt for the predetermined data plan. What’s more, OEMs might decide to appoint the selected telecom service provider as the exclusive option, monopolizing access to data services related to the car. The European Commission, in its report on access to digital car data11, explicitly highlights the issue of users who derive significant benefits from data usage being charged higher prices. In the realm of personalized pricing, OEMs can identify the details of how car owners interact with their vehicles.
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- Every firm focuses on pursuing the consumer with new and different features, every time company comes up with a new thing in the market.
- Thus, when a firm lowers the price, the rivals also reduce the same immediately.
- Apple iOS and Google Android dominate smartphone operating systems, while computer operating systems are overshadowed by Apple and Microsoft Windows.
- So in order to stay relevant, they have to stay a step ahead and always be active.
- One reason for this is the oligopolistic nature of the industry, which has a few firms dominating production and market share.
- Market entry and exit- Entry barriers exist majorly due to high capital.
But it is a significant consumer, with large operations in infrastructure sectors such as airports, ports, logistics facilities and power plants. Such business synergies apart, cement as a business has delivered market-beating returns in the past two decades. Sellers can only think about the possible reaction of other sellers if one firm makes any decision. Hence, studying rival firms behaviour becomes part of the firm’s operation.These are the descriptive explanation of four different types of an oligopoly market. Non-collusive oligopoly refers to the market where firms behave independently but in reality, they are interdependent in the industry. Seller’s perception of the other sellers in the market decides their behaviour and decisions.
Economics (Optional) Notes & Mind Maps
Pepsi also has also doubled distributors, cooling capacity and even the number of vehicles in rural areas. Coca-Cola has made its beverages available in 40,000 additional villages in the last three years. As a result, the rural areas now contribute 35 per cent of the company’s sales compared with 25 per cent in 2000. In the recent past both the companies took aggressive steps and signed on thousands of new retailers in a drive into rural India that has pushed up sales steeply.
Therefore, the competitors in an Oligopoly Market are less but the competition itself is fierce. Since price competition can lead to diminishing profits, telecom firms in India also focus on non-price competition. This includes improving network coverage, offering better customer service, and providing value-added services like mobile banking, entertainment packages, and exclusive content.
In fact, government is encouraging competitive manufacturing through the production-linked incentive (PLI) scheme. A lower per unit price also ensures that the government generates more revenue as consumers purchase larger quantities of goods at a reduced price. Thus, Indian policymakers should not hesitate to prioritise the creation of such a business environment. Partial oligopoly is that market situation in which there is a dominant firm in the industry.
Regardless of the brand of computer, the operating system will always be sure from any of those described above three. Due to the presence of a few firms in the industries, firms are able to earn a huge amount of profits. The demand for oligopoly examples in india products that are sold by oligopoly firms are high and in general, these goods are needed or wanted by the large majority of the population. This is the conclusion of a price war in which one firm emerges as the winner. In most cases of oligopoly market price are set with the agreements among the firms and these agreements can be either tacit or explicit.
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