The oligopoly market

The oligopoly market

Different kinds of economic shock have hit the economy of the USA. The ever-growing concentration of more economic power vested in few technological companies, such companies have a general cause-effect on growth and shocks in the labor sector. There has been a high political powerful oligopoly that has been outlined as Faangs (Facebook, Amazon, Apple, Netflix, and Google) has generated more complications for other companies to grow and hence leading to more concern to the economy.

Recently Google used dominant Android software manly to favor its search business. It should be not seen that the EU has no innovative spirit but should be understood that the EU has fostered competition. With this much oligopoly market in the state, there have been more issues in the wages where the worker have less power in bargaining their fair wages. And causing more problems and rifts between the rich and the poor. On the other hand, it has been outlined clearly that these oligopoly markets lead to more mergers and hence reducing the jobs in the job market. With just a few dominant players in a given market or sector few suppliers are associated, this has led to a big issue in the overall economic growth of the USA. The dominancy of this “Flags” has led to different trade wars among other countries; an example is Google and the Huawei fight that occurred in the last few months. These resulted in the high imposition of tariffs on Chinese products in the USA and vice versa hence affecting the general economic performance of the country and the foreign exchange as well.

To understand more concerning the oligopoly market, it is essential, therefore, to analyze some of the assumptions associated with this model or rather the economic principals. It is, however, assumed that the firm in this model will protect and maintain their market share and when outlining the pricing method on these model the rival firms are most unlikely to match the price increase of another firm but can only match the price fall, in short, the firms or the players in the oligopoly market react asymmetrically as a result of change of prices by another player.

When one firm increases prices while the other one leaves its prices constant, then there might be a considerable substitution effect and hence leading to demand to be more relatively price elastic, which might lead to market share loss. On the other hand, if the firm reduces prices, but the other firm follows, then the relative price change is the same and hence leading to inelastic demand. This, therefore, will only lead to a minimal fall in revenue but no effect on the market share.

As per the kinked demand curve above, a prediction that a given business might attain a stable profit-maximizing equilibrium where prices are P1 and when the output is Q1 with minimal incentives to change the prices. The kinked demand curve, however, shows that there will be periods of relative price stability as per this model where a business aims at a non-price competition as a way of coming up with its market share and attaining its profits. Under the kinked demand curve, short-lived wars outlined by the rival firms can also happen. When price war sets in, the firm in the market is aiming at utilizing the short term advantage and win some of the market shares, before the long term struggles of the price war.

Despite the fact that oligopoly has its shortcomings, it’s essential in the current economy as it can adopt a competitive strategy. Although the model can result in some inefficiencies in the market by reducing the levels of innovation, it can lead to more competitive outcomes. When the firm fully utilizes the benefits associated with such a model, then the result will be the same as those felt in the perfectly competitive markets. In this case, consumers can enjoy quality products as well as affordable products and services. The firm also can channel the extra profits to research and development. When an economy feels that there is more of an oligopoly, innovative products and services are generated hence meeting all the customer’s preferences.

Oligopoly, nonetheless, can lead to price stability in the market. Despite the fact that the consumer price in an oligopoly market is much higher as compared to completion, a market can enjoy much more price stabilities as per the action of the firm. Such an advantage gives the customer the ability to plan for the future. Oligopolies also provide more information to their consumers as a result of competition and the aim of increasing their market share. This, therefore, ensures that the consumer knows fully about the product and service they are buying and hence satisfied for the value of their money as well as help them make a rational decision when buying products or services.

It should be understood that even though oligopoly provides theoretical benefits if all involved players are good, the reality is that with no competition in the market, there will be more setbacks and inefficiencies in the market. Therefore, when a few players hold more of the market share, then there can be high chances of inadequate innovation and competition in the market.