An oligopoly market is a market that have few large sellers competing with each other.
For example, the telecommunication market in Malaysia which included Maxis, Digi and Celcom.
These three companies are the large sellers in the telecommunication market. This is because there are high barriers to entry to this telecommunication market which involve the licensing and regulations, heavy capital investments and minimum efficient of scale required that restrict entry of competitors. This causes they are the only large sellers among the telecommunication market in Malaysia.
They provide differentiated services to attract consumer to consume their services. They offer different calling plans, online plans, caller ringtone and so on.
An oligopoly can considered a 'price-maker' which means that they can set their price according to their wish to maximize their profit but in return they need to consider the rivals action. For example, if Maxis plan to increase the price of calling plans, Maxis have to consider that action of Digi and Celcom, if they do not increase their price, naturally consumer will choose to consume the same service with lower price, thus Maxis cannot increase the price of calling plans to increase their profit.
Apart from that, they can have non-price competition between each other. They can create brand loyalty and build a long-term profitable relationship with consumer. Therefore, it can reduce the opportunity that consumer switch brand. They can also do advertising to magnify and inform people about their benefits and promotions.
However, an oligopoly market always face the problem which is to compete or cooperate with rivals. If they choose to compete, this may benefit the consumers because they have to consider the price they set and provide better services in order to attracts people to consume their telecommunication services. If they choose to cooperate which is so-called to form a cartel, they are able to create a huge monopoly and make decision on price set and the level of output. Thus, they can earn supernormal profit in no matter short-run or long-run. It is illegal to form a cartel in some countries to protect the consumers.
written by : Kwong Shu Zen 0315596
resources :
http://amazingeconomics.wordpress.com/2012/11/21/the-telecommunication-industry-in-malaysia/
http://www.thestar.com.my/News/Nation/2012/10/30/Maxis-adds-more-options-to-existing-Internet-plans.aspx
What is the difference between price taker and price maker?
ReplyDeletePrice makers are those companies that dictate the price its customers pay for goods and services.Price takers are those companies that cannot dictate their prices but their prices depends on the market.
ReplyDelete