Characteristics of Oligopoly

The oligopoly market usually consists of a small number of firms. These small numbers of firms are the dominators in the market. What do you mean by dominators in the market? I believe it refers to the firms that have the power to influence the market. In oligopoly market, people might think that it is an extra competitive market as one firm’s action could affect the market very widely. On the other hand, there are also the firms in the oligopoly market having agreement among them in order to keep their benefits stable at the same time. This is usually known as the cartel, which the firms in this market more likely act as one single firm and having agreement on product changes like amount of outputs, advertisings, prices and etc. When cartel is created, there might be collusion occurring in the market. This collusive agreement might cause the market to act like a monopoly market at the same time. There are also existent of oligopoly market with very fierce competitions at the same time. They try their best to compete against each other to dominate the shares in the market to maximize their benefits to their individual company. When the competitions against their rivals are high, there won’t be any cartel among them and they also try to keep their business strategy more confidential ( Slowman et al, 2012)

            The above graph is showing an oligopoly market industry with cartel which is acting like a monopoly market. When the firms in this market act like a single firm, the profit is maximized. The cartel’s MC curve is the horizontal sum of the MC curves of its members are combining the outputs of all the firms with cartels at each level of MC. Profit is maximized when MC = MR. https://www.google.com.my/search?q=profit+maximizing+cartel+graph&safe=off&source=lnms&tbm=isch&sa=X&ei=s4yxUbf7FoyPrgfD1YCAAg&sqi=2&ved=0CAcQ_AUoAQ&biw=1088&bih=499#facrc=_&imgrc=e33kAbVnLZAGiM%3A%3B2tpqtdivI6xKbM%3Bhttp%253A%252F%252Fwww.chatt.hdsb.ca%252F~dalyr%252FFOV1-000DC265%252FFOV1-0013E47C%252FFOV1-0013E47D%252Fimages%252Fpic488.gif%3Bhttp%253A%252F%252Fwww.chatt.hdsb.ca%252F~dalyr%252FFOV1-000DC265%252FFOV1-0013E47C%252FFOV1-0013E47D%252Fpage_274.htm%3B300%3B200

In the oligopoly market also consist of non-price competition. This competition is not a pricing basis competition. According to Slowman et al, (2012) This competition involves two major elements which are product development and advertising. The major intention of product development is to produce products which can sell. Producing products are highly demanded by the consumers will affect the company greatly with higher revenues. Especially for service providing industries like airlines and telecommunications should definitely work on providing a better service for the consumers than your rival in order to dominate the market share. Besides that, for product producing industries like smart phone manufacturer or products that involve technological features should invent new products with interesting new features that your rival could not achieve in inventing the products. Other than product development, advertisement is one of the elements in the non-price competition. The major intention of advertisements is to bring more awareness of the products or services to improve the sales. Good advertisement skills can deliver the information and convince the consumers to purchase the goods. Though these two elements could cause the firm to increase the costs in the products, it is one of the important department to increase the demand of the products and also hence the revenue.

The participants in this market usually pay close attentions to their competitors on things like price settings and also marketing strategy of their goods or services. Oligopoly firms usually response very quickly to their competitor’s actions or product changes.

As a business owner, marketing strategy is the key feature that increases the awareness of the product or services that you offer. In this case, it is definitely important for you to pay concern about your branding awareness. The higher rate of brand awareness could benefit the business by increasing their revenues and also provide larger number of business opportunities. The firms in this oligopoly market should pay high concern towards their competitors marketing strategy as the way you deliver your brand awareness is a very effective key to dominate the share in the market. For example, Oligopoly market which consists of three major companies. The companies are company Maxis, Digi and Celcom. The company Digi, came out with a new marketing strategy of better mobile data plans than previous data plan.

	DG Smart Plan 68       ( old )	DG Smart Plan 58        ( new)
Monthly Subscription Fee	RM 68	RM 58
Voice Calls	None	200 minutes
SMS	None	200 sms
Data	5 GB	2 GB

 

The data above shows the previous’ and new data plan which has made the revenue of Company Digi increases. This can be seen through the link: http://www.intellecpoint.com/2012/09/maxis-celcom-digi-who-is-growing-faster.html However, two other firms in the market will tend to set their marketing strategy similar to company Digi in order for them to improve their revenues as well. This often happens to telecommunication provider services like Maxis, Digi or Celcom. When one of the companies comes out with a new plan of their mobile plans, the others will tend to come out with more in order to catch the clients’ attentions.

Related Link:  http://www.digi.com.my/business/productsandservices/callplans/smartplan.do

Besides that, the business firms in the oligopoly are the price makers. They have the ability to control the price of the products from affordable to costly. Price is one of the key determinants to value the product or services. It is important for the business firm to set the price right in order to maintain their consumers’ expectations. In the oligopoly market, it is important to pay very high concern towards your rivals’ behavior in pricing their product as firms in this market most likely provide similar product or services. It is important to let your consumers acknowledge that the products or services provided are worth paying for compare to your competitors. In some cases, when cartels are made between the firms in the market, all the firms will discuss on the cartel price to actually maximize their profit. When cartel price is made, the firms will provide the products or services at similar prices.  http://www.reuters.com/article/2012/04/26/us-alcatel-lucent-idUSBRE83P0AC20120426

One of the common causes of the existent for this market is the rules and regulation which are necessary in operating the firm. The rules and regulations operating the company vary according to industries. The industries that have strict restrictions on license and regulations are usually industries like telecommunication companies. In order to operate an telecommunication or data provider service companies, different license and permissions needed to operate them legally. There will be law actions taken if the firm is not operating their company according to law or unfortunate accidents happens because of the company’s mistake. Besides that, it is necessary to ready a huge amount of capital in order to start a telecommunication company. In order to operate a telecommunication company, big machines and tools are needed in order to provide services to the consumers. The machines cost millions or even up to billions. It is definitely a hard job for the new company to enter in the market to compete with the existing companies as the assets and tools they have might not be enough compare to the competitors and also provide equal quality of services. New modern technology that involve high level of skills are needed in order to provide services that satisfy the consumers. This can be seen through the link below:  http://www.investopedia.com/features/industryhandbook/telecom.asp

            As according to the information that I’ve stated above, oligopoly market is a common market which characterize the huge and important industries to the economy. It is important for us to understand the causes and effects of this market, and also to make use of the knowledge in order for us to operate a business or participate in business industries in the future. Not to forget, oligopoly is not the only type of market available in the economy. There are many more different types of market that we have to understand in the economy in order for us to improve our business knowledge.

Referencing list :

1)      Abboud, Leila. (2012) “Alcatel – Lucent Margins Slip On Telecoms Slowdown” [Online] Available from:  http://www.reuters.com/article/2012/04/26/us-alcatel-lucent-idUSBRE83P0AC20120426 [Accessed : 3^rd June 2013]

2)      Investopedia. (2013) “The Industry Handbook : The Telecommunications Industry” [Online] Available from:  http://www.investopedia.com/features/industryhandbook/telecom.asp [Accessed : 2^nd June 2013]

3)     Sloman, J., Wride, A. and Garatt, D. (2012) Economics. 18^th ed. England: Edinburgh.

4)     Intellecpoint. (2012) “Maxis, Celcom, Digi: Who is grabbing whose market share?” [Online] Available from:  http://www.intellecpoint.com/2012/09/maxis-celcom-digi-who-is-growing-faster.html [Accessed : 2^nd June 2013]