Question

Which of the following markets are oligopolistic?

• passenger airlines
• cereal
• fast food
• wheat
• golf equipment
• the college bookstore on your campus

What happens to pricing and service in oligopolistic environments? Please use an example and include a resource.

Answer 1

ANSWER: Passenger airlines

• The passenger airlines is the markets oligopolistic because of high barriers to entry in this market which are the huge capital costs and that is why there are not many players in the market and therefore it can be considered as oligopolistic market

Usually, it can be mentioned that in an oligopoly usually the organisation gets to resist the changes in price and this is because of the fact that in an oligopolistic market, if there are changes in price, then all the other players are forced to decrease in the prices decreased by 1 organisation with which they actually are less profit and if they increase the prices actually lose their market share price many customers will move to other companies on the whole and for instance if one airline company increase the price then people will shift to other airlines which isn't desired as the former loses the market share.

A market condition where there is only a small number of sellers and where it is challenging for newcomers to enter is called oligopoly. The reason for the low number of actors usually arises from economies of scale. A small town may have only two hotels. Such a duopoly can have a sufficient capacity to provide visitors with good service and availability of rooms. Having three or more hotels might become inefficient – this is why nobody wants to invest in a third hotel.

There may be legal barriers to entry as well. This is the case if a government regulates an industry. For example, there is a limited band of standard radio and television frequencies. Therefore, authorities cannot accept all applications for new channels. Even if there was space for new channels, governments are at times willing to limit the number of broadcasters — to protect the market share of state-owned channels, for instance.

In oligopoly, some companies have large market shares and can thus affect prices. Therefore, the competitive landscape can be called imperfect. In an optimal situation, an oligopoly can isolate a product’s value to each customer and ask for exactly that price. This method is called price discrimination.

Whereas optimising output so that marginal cost equals marginal revenue is also important in perfect competition, knowing how competitors react to one’s pricing decision is, however, something that has to be taken into account in oligopoly.