Oligopoly Dynamics Models and Tools

Question: Discuss about the Oligopoly Dynamics for Models and Tools. Answer: Introduction In economics, market structures can be dealt in mainly four types that is Perfect competition, monopoly, oligopoly and monopolistic competition. Oligopoly is one of the market that dominates the other market structures such as Australia is said to be known for land of oligopolies which accompanies supermarkets, telecommunications, insurance as well as backing. Although, Australia is predominantly an oligopoly state it has been facing issues in surviving its oligopoly structure because the barriers of entry as higher costs, knowledge and economies of scale. The organizations that have been competing the oligopoly structure in Australia have high margins, excessive earnings, and lower costs of entry due to digitalization in the economy (Doyle, 2013). This is not only impacting the industry structure of Australia but also attracted new competition in the market whether it is in supermarkets, telecommunication or finance industry. On the other hand, the financial resources and regulations have not much been a hurdle in Australia lately due to combined market sales and the rise of differentiated products. Moreover, the regulations of Australia or patents have not been an issue at all for the new competition entering in the market. As an oligopoly structure dominates the other firms in the same industry and due to highly differentiated products, the competition is between sales and not price of the commodities (Fudenberg, Tirole, 2013). The actions of an oligopoly firm has been creating a verge of ruling the market while keeping a close watch on its competitors through price wars (Schmidt-Dengler Takahashi, 2015). The oligopoly structure can be well defined with the kinked demand curve whether two or more companies dominate the industry by creating monopoly power. The graphs that can further explain the method is give below. The profit maximization of kinked demand curve explains the behaviors of two firms in an industry that makes the demand curve elastic at high prices. The profit maximization is described when marginal costs (MC) equated with marginal revenue (Levy Tardiff, 2014). An oligopolistic firm differentiates its prices by appreciating its prices above a point P assuming that other firms will not follow the suit due to barriers of entry like economies of scale, product differentiation, capital requirements, distribution channels, complicated change of supplier, government regulation or technology know how (Sushko, 2013). In Australia, earlier the firms were not available to cope up with growing competitions of the duopoly in the supermarkets that is Woolworths and Coles. However, recently there is shift in the landscape because of the incumbents market share effect and the power that the big players possess (Adiktd, 2017). This is because other supermarkets have started to make an impact in the land of Australia that are German Aldi, SPAR and Costco as the supply chain has been captured by the new competitors. There has been major hit for the monopoly Telstra in telecom industry as now shares the same platform with Optus and Vodaphone Australia. The invisible hand has stepped and power has been shaken of a five year dominating organization by its competitors because it has been slowest and costliest inhibitor of innovation and growth of the business (Smith, 2015). On the other hand, one of the major factor of the dearth of oligopolies in Australia is the poor policy that has not achieved the regulations success due to business practices. Moreover, Australia has a sluggish growth and due to maintain the oligopoly power has a large budget deficit (Strong, 2016). On the contrary, aggressive firms like Optus and Vodaphone has created an impact on Singtel such that it is delisting from Australian Exchange. When analyzed on insurance, oligopoly market Insurance Australia Group (IAG) and Suncorp has resulted in losing market share due to online promotions as they have no stronger role in media advertising. This barrier of entry has been taken advantage and the firms like TPG Telecom and iiNet have been performing mergers. The same impact can be seen on television industry Foxtel competitors possess cheaper alternatives which have lured the subscribers away. The same has been significant in the mining industry where organizations like Rio Tinto and BH P Billiton has been fighting for their legacy as the low cost rival Fortescue Metals has flooded the market driving down process and new formation of distribution channels for supply (Smith, 2015). Recommendation The forecast has been showing that the number of margins of the competitors in the Australia might grow which will continue to perspire assets of the established monopolies and oligopolies in the market. This can be curbed if the monopolies and oligopolies in the Australian market do not damage the growing level of innovation through the unwise behavior because of rising competition from the new competitors. Moreover, the productivity of the country is hampered by the producers and manufacturers who are facing dilemma because of pressure from oligopolies that are held by poor means (Strong, 2016). Secondly, as per economics analysis the taking up o market penetration needs to be gauged at possible outcomes of being a monopolistic or being efficient. However, to maintain market share, the Oligopoly market needs to have increased profits and large market share as similar to Bertrands competition which is pareto optimal (Huck, Lnser, Tyran, 2016). Conversely, if there is continuous pressure to perform reforms to maintain profits from shareholders, then the cartel arrangement would be suitable to act like a monopoly without the external intervention. Conclusion To conclude, the above view of salted Australian society needs to be checked with growing number of competition which the monopolies, oligopolies and duopolies are facing. Moreover, the reforms will help in reforming the organizations so the competitive law is removed ensuring dominance by not taking advantage of it. The economic analysis drawn highlights the plight of strong oligopoly, duopoly competitors that have been trying hard to maintain their monopoly power by good practices so that the resources can be accessed. References Adiktd. (2017). A slightly salted view of society: Oligopoly in the Australian Banking Sector. The-efficient-frontier.blogspot.in. Retrieved 22 April 2017, from https://the-efficient-frontier.blogspot.in/ Doyle, G. (2013).Understanding media economics. SAGE Publications Limited. Fudenberg, D., Tirole, J. (2013).Dynamic models of oligopoly. Taylor Francis. Huck, S., Lnser, G. K., Tyran, J. R. (2016). Price competition and reputation in markets for experience goods: An experimental study.The RAND Journal of Economics,47(1), 99-117. Levy, D. S., Tardiff, T. J. (2014). Pricing and Maximizing Profits Within Corporations. InDemand for Communications ServicesInsights and Perspectives(pp. 185-209). Springer US. Schmidt-Dengler, P., Takahashi, Y. (2015). Entry and Shakeout in Dynamic Oligopoly. Smith, M. (2015). The death of the oligopoly: Australia's incumbents face new rivals. Financial Review. Retrieved 22 April 2017, from https://www.afr.com/brand/chanticleer/the-death-of-the-oligopoly-australias-incumbents-face-new-rivals-20150421-1mq11b (Main article which has been) Strong, P. (2016). Why Australias love affair with oligopolies needs to end - SmartCompany. SmartCompany. Retrieved 22 April 2017, from https://www.smartcompany.com.au/business-advice/legal/why-australias-love-affair-with-oligopolies-needs-to-end/ Sushko, I. (Ed.). (2013).Oligopoly dynamics: Models and tools. Springer Science Business Media.