Explain why oligopoly is a realistic market structure in most economies. (10)
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Explain why oligopoly is a realistic market structure in most economies. (10) An oligopolistic market is a market where there are a small number of firms which are interdependent and compete with each other. There are three main characteristics of an oligopoly, these are; firstly there is some product differentiation, secondly there a few dominant firms and finally each of the firms are interdependent. All firms entering into specific markets are going to come up against restrictions and requirements. These are known as barriers to entry and are one of the main features of an oligopolistic market. The example that will be used for illustrating an oligopoly is the soft drinks industry.
Even when people are aware the price is still going to be relatively high due to the high capital costs encountered by the firm. This will possibly increase the price of the product leading to less demand for the product. This follows onto the theory of the kinked demand curve. * This kinked demand curve shows that a rise or fall in marginal cost will not affect the profit maximising level of output or price. This shows relative price stability in oligopolistic markets. This kinked demand curve assumes asymmetrical reaction to a change in price by one firm. This means that as one firm increases it price then the other firms will not react.
Although being illegal , this can occur on any level, such as electrical contractors, builders, a local example or jersey is that this occurs in the driving instructors association where a standard price is charged for lessons. From this we can see that most markets feature oligopolistic characteristics. They occur due to the type of industry and firms within a market. As monopolies are in most terms illegal, certain industries can become oligopolistic, and collude to ensure profits acting in a monopolistic way. In every industry there is more than one firm contesting for market share, often being a small amount of firms that dominates the market, it is these characteristics which make an oligopoly a realistic market structure in most economies. ?? ?? ?? ?? Economics essay
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