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Is the Watch Industry dominated by an Oligopoly which is beneficial to both firms and consumers?

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Introduction

Is the Watch Industry dominated by an Oligopoly*, which is beneficial to both firms and consumers? *= See glossary for meanings. Hypothesis I believe that the watch industry is dominated by an oligopoly, which is beneficial to both firms and consumers. The watch firms are both price makers*, which is good for the watch firms, and price takers*, which is good for consumers. Aim In this investigation I shall be examining the watch industry. I will use a Mintel report of the watch industry produced in 1995 and information worksheets to test my hypothesis. Findings and Application of Theories Five companies, or the 'C5 ratio', dominate the watch industry. They have 40% of the market share* (see fig.1.). Zeon Ltd. is the market leader*. There have been no recent take-overs or mergers in the watch industry, so the market leadership is slight. The growth of the industry has been organic*. Brand Parent Company Market Share % Zeon Zeon Ltd 10.5 Seconda Time Products 10 Casio Casio 7 Lorus Seiko UK Ltd 6.5 Timex UK Time Ltd 6 Total 40 This representation makes the watch industry an oligopoly, as opposed to being perfect competition*, imperfect competition, or a monopoly*. There are a number of reasons why the watch industry is an oligopoly. Firstly are there barriers to entry* as opposed to free entry*. One barrier to entry for other prospective watch manufacturers is economies of scale*. The larger, more established firms have a number of cost advantages, such as being able to buy raw materials in bulk or borrow large sums of money. ...read more.

Middle

Also, if a company joining the watch industry is already operating in other areas, the chances are that a large amount of capital will be available, meaning that the advantage of economies of scale that the watch firms have is lost. Although officially the watch industry is an oligopoly, I believe that because different makes of watch are targeted at different socio-economic levels, each level has its own small monopoly in my opinion. For example, Rolex sells watches at the highest end of the socio-economic groups (with watches costing several hundreds and even thousands of pounds) (price skimming* on a long-term basis) and is usually considered more of a luxury or status good. Casio on the other hand sells watches from a few pounds up to around one hundred pounds (an equilibrium of market price and economic price) and is considered more of an everyday 'utility' watch. Being 'in my price range' does not necessarily mean that a cheap watch is being sought out. The two makes are not really in competition at all because Casio targets the lower to middle class socio-economic group where Rolex targets the upper class group only. Other than price, many brands have their 'niche' style of watch even in the same pricing levels, for example some brands focus on (but not exclusively) sports/outdoors utility (Casio 'G-Shock), whereas others focus on style (Seiko). Another barrier to entry that may not always hold is that of innovation. It is true that companies may have trouble creating new styles or functions of watches, but many firms have succeeded in simply copying the same styles as other brands and selling them. ...read more.

Conclusion

- Economies of Scale: Refers to the shape of a firm's long-run average cost curve. If the average cost falls as output increases, the production process is said to exhibit economies of scale. - Control of retail: Powerful firms try to prevent competition by restricting access to retail outlets. E.g. Only Zeon watches may be sold in the 'Next' retail stores. (Made up example). - Price war: Occurs when each business in the market cuts prices in turn. This process can continue until some of the competitors are making losses. - Non- pricing competition/ Non-competitive pricing: Involves adding value to the product by finding ways to make it different from the competition. Design, quality, any individual features, advertising and other forms of promotion may all be possible. - Price Skimming: Initial price set high for one of two reasons. A) To recover initial development costs. B) To 'cream' off the market- the product is a novelty/ luxury item. The success of this strategy depends on maintaining low costs at low volume on a high quality image with few or no competitors. - Price Makers: In a monopoly situation where there is only one, or very few suppliers. The industry can set its prices at whatever level they want without the chance of being undercut by competition (because there is none). - Price Takers: In an industry where there is a lot of competition (ideally perfect competition), the sellers must have the prices of their product low in order to sell them. If they did not have low enough prices, customers would go elsewhere as there will be many substitutes that are cheaper. ...read more.

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