Table of Contents
Introduction (1)
Oligopoly (1)
●Entry barriers (1)
●Non-price competition (1)
Explanation for Diagram in Oligopoly (2)
Pure Competitive Market (3)
●Lower prices (3)
●Low barriers to entry (3)
Explanation for Diagram in Pure Competitive Market (3)
Roles of Profit in Market Economy (4)
●Demand for factor resources (4)
●Market Entry (5)
The other two alternatives to profit maximization (5)
●Satisficing behaviour (5)
●Sales revenue maximization (5)
Influences on a Firm in the Short Run (6)
References (7)
1.0Introduction
Marco and Micro economic knowledge we had learned in this period is mainly to discuss about some major market structures in the entire market now. And they are oligopoly, monopoly and pure competitive market and so on. In this case, the Virgin Mobile had entered in mobile phone market in the UK, which is an oligopoly market. In this market, Orange, V odafone, BT Cellnet and One2One are the oligopolists.
2.0Oligopoly
When a market or industry is dominated by a small number of sellers, we usually believe an oligopoly appears. And there are two main features of oligopoly:
●Entry barriers: It’s a great block for the new company to be a long-run part
of an oligopoly market. Usually, many smaller firms operate on the periphery on such s market, which means these companies cannot reach the supernormal profits or affect much to market prices and output. Take Virgin Mobile (VM) as an example: Before VM engaged in the mobile phone market in the UK, there were some industrial giants conquered the market- Orange, V odafone, BT Cellnet and One2One, which account for a large market share.
Although VM is making profit, the money it earned is far less than any one of these oligopolist.
●Non-price competition:As a few company be dominant to an industrial,
pricing can be no longer an effective competitiveness for those oligopolistic firms. Compared with pricing, after-sales service, extension of new market and advertising seem to be more emphasized by them. In this case, the VM is better to promote the competitiveness in such ways -- improving the after-sales quality, expanding into new markets , building their own brand and so on.
3.0Explanation for Diagram in Oligopoly
In the oligopolistic market, the oligopolists may react diversely to the different price variation trend of their rivals. If one oligopolist raises the price and other companies will not follow it to maintain the market share, however, if the company reduce the price and other companies must follow, which is to keep more market shares. It can be seen in the kinked demand curve below.
Before the price is higher than P1, the product demand is elastic that means the price raises and the total revenue will reduce. But when the price is lower than P1, the product demand is inelastic -- the price reduces and the total revenue will also do. Thus, the company may able to reach a stable profit-maximizing equilibrium at the point G, so the companies in the oligopolistic market can not change the price optionally.
