Another very important characteristic of an oligopoly is the interdependence between the firms, which means that each firm has to consider the reaction of other firms when choosing the price of its product. Some economists try to define a market as “Economics is much like a game in which the players anticipate one another's moves.” This interdependence may lead to collisions which are when businesses agree to act as if they were a monopoly.
In an oligopoly there are also a lot of barriers to entry, which are the same as in a monopoly. Main barrier to entry are: control of a unique resource, patents, special legal provisions, predatory practices and economies of scale. However the barriers that apply more to this particular industry is brand names created over a long time and, which provokes brand loyalty, confidence and therefore makes it very difficult for a new firm to enter. Also one needs to have an enormous amount of capital to be able to start of and stay in the business fro a while before the first profit is made.
THEORIES ABOUT OLIGOPOLY PRICING
In general oligopolies are very similar to a monopoly or in most part that is their goal. One of the theories about the pricing in an oligopoly is that oligopoly firms collaborate to charge the monopoly price and get monopoly profits. Oligopoly firms also compete on price to maintain the same price and profits as the other firms in the same business.
Firms compete for market share and the demand from consumers in lots of ways. There is an important distinction between price competition and non-price competition. Price competition occurs when a firm lowers the price to increase the demand, which however never truly happens with this kind of products. Therefore they use a non-price competition, which focuses on other strategies for increasing market share. Those are things such as: mass media advertising and marketing, brand loyalty, good service, and finally location of the store.
Sometimes there is price leadership in oligopolistic markets. When one firm has a dominant position in the market, the firms with lower market shares may simply follow the pricing changes prompted by the dominant firms. However in bag industry the prices are very stable and have not changes for many years, also all the competing companies have similar market shares.
If one considers the designer industry as a whole, it is possible to conclude that even though all this famous companies have shops in every big city in the world, most of their profit is made of Fashion shows and selling of their brand name. One might also question why these firms keep such high prices even though the demand is quite low. The answer is that from selling one bag these companies compensate the making of ten if not more. This market does not exactly follow the supply and demand law, for the fact that they never lower their prices and if they would many of their old costumers who were willing to pay a high price would be lost.
Another source of economic power is the ability to operate on a global scale. The ability to shift production from one country to another gives these firms more bargaining power with governments and with their labor forces.
PERSONAL LOOK AT THE FIRMS
As a comparison I took three very well known bag producing firms: Prada, Gucci and Versace. In the three different shops I observed similar bags and compared their prices.
As one can observe from the table above all the prices are extremely high, but in most part quite similar. From the prices shown above it is hard to make a patters, but in general I have noticed before that the bags from Gucci and Versace are slightly higher then those of Prada. The reason for this is the fact that Gucci and Versace have been on the market for a much longer time and have a stronger brand name. Another factor is that Prada mostly specializes in bags and shoes, while the other two firms have a much brighter industry, producing everything from Gucci baby shoes to golf sticks to make up. Therefore these two companies are not only a vertical combination, since they produce their own fabrics, have factories and shops but are also a conglomerate combination. Meanwhile Prada has always been a Mixture of a vertical combination and a circular combination, since it specialized on products such as bags, shoes and wallets.
From the high prices it is clear that everything is based on a brand. The design and quality of these bags is not much batter then of those sold in Humanic, with almost the same design and made from same leather, but the only difference is the presence of a tag with the company’s name.
Conclusion
The world of fashion is a very competitive market, based on advertisement and marketing of certain products. It is true that sometimes accessories are the most important part of an outfit and a bad choice of a bag may ruin everything. Therefore it is very important fro a consumer to have a choice in this market so each individual can form their own style and it does not have to be based on designer products, but as long as people will continue creating a social class statement through their clothes and bags, firms such as Gucci or Prada will always to exist keeping the prices just high enough so their product in not available fro most of the people.
