When studying oligopoly, it is important to keep in mind that there are many different ways that companies may operate. For example, a company may be part of a Syndicated oligopoly, or it may operate as a Kinked demand curve. There are also many other factors that affect whether an oligopoly is successful or not.
Coca-Cola or Pepsi?
Coca-Cola and Pepsi are two of the most recognizable soft drinks in the world. Their names and logos are a part of everyday life in the United States. They also have long been rivals in the soft drink business.
Both companies have extensive histories. Pepsi was founded in 1898 and Coke was founded in 1886. But the two have very different ingredients, compositions, and tastes.
Pepsi is more caffeinated than Coke. It has a smoother taste and a slightly higher sugar content.
The company behind both brands is huge. Coca-Cola is owned by the Vanguard Group, while Pepsi is owned by BlackRock.
Although Pepsi is more popular, Coca-Cola holds a larger share of the US market. They are also the bigger company. However, they do have complementary business lines.
Pepsi and Coca-Cola are also very different in the way they market themselves. For example, Pepsi is known to redesign its marketing campaign from time to time to cater to current trends. This can lead to engagement peaks and troughs.
Oligopoly is a market situation where a small number of firms control the supply of products. These firms can decide the prices of the product they sell. The price of the product is usually fixed and inflexible.
Oligopoly can be either collusive or competitive. In the latter, there are a few firms that control the supply of a product and other firms compete with each other. If the market is competitive, the firms can compete for the market share of the buyer.
Oligopoly is considered an imperfect form of competition because of its group behavior and the lack of uniformity. It is often difficult to enter the oligopoly market because it can be too costly for new companies.
Different oligopoly settings can give rise to different optimal strategies for firms. For example, in a collusive oligopoly, the decisions of each firm can directly affect the fortunes of the other firms. But in a competitive oligopoly, each firm must respond to the actions of its rivals.
Kinked demand curve
A kinked demand curve is a graph of the behavior of firms in an oligopoly. It illustrates the interdependence of the firms in the oligopoly. The kink in the demand curve occurs when two or more demand curves meet.
The kinked demand curve was developed by American economist Paul Sweezy. This model was first published in 1939.
An oligopolist is a firm that has a high concentration ratio over 50% of the market share. In an oligopoly, each firm faces two demand curves: an elastic demand curve and an inelastic demand curve.
Each firm has a demand curve that is more elastic when the price is lower and an inelastic curve when the price is higher. When the oligopolist increases the price, the quantity demanded decreases more than the price increase. However, when the oligopolist cuts the price, the quantity demanded increases less than the price reduction.
If the oligopolist reduces its price, its competitors would do the same. Therefore, the firm would lose its customers.
Barriers to entry
Barriers to entry are legal or artificial barriers that prevent or discourage a competitor from entering a market. They are designed to limit competition and protect the profits of existing players.
Often, these barriers are created by governments or firms. However, they can also be naturally occurring.
In general, there are four types of barriers to entry. These include natural, legal, technical, and strategic. Each category has positive and negative implications for a firm.
A natural barrier is one that is present in the market and primarily affects monopolistic markets. It is usually found in industries where the protection of human life is an important aspect.
Some of the most common natural barriers include the high costs of setting up an industry. Patents are another barrier to entry, as they entitle the owner of the patent to produce and sell a specific product.
Another natural barrier is the size of the dominant players. These may be established firms with a high market share or low cost advantages.