OLIGOPOLY

• A situation in which a particular market is controlled by a small group of firms.

• An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market.

• The number of producers in oligopoly are lesser than that of perfect competition and monopolistic competition.

• The few firms in oligopoly enjoy a high degree of market power.

DEFINITION OF OLIGOPOLY

• Profit maximization conditions

• Ability to set price

• Entry and exit

• Number of firms

• Product differentiation

• Perfect knowledge

• Interdependence

• Non-Price Competition

CHARACTERISTICS OF OLIGOPOLY

• The aviation industry in India used to be exclusively managed by Air India and Indian Airlines and the flying rates used to be high.

• With the entry of new private airlines like Jet, Kingfisher and Indigo into the aviation industry more competition was infused into the airline industry.

• The present aviation industry in India, especially with regard to passenger airlines, follows a strictly oligopoly structure.

INDIAN AVIATION INDUSTRY

• Indian Airlines announced 3-15% cut in fares in June 2002, next day Jet Airways reduced prices by Rs.635 for economy class.

• In 2013 Indigo followed 1-rupee base fares for metro-to-metro Diwali bookings when SpiceJet announced the same.

• In 2014, Air Asia a budget/low-cost carrier, entered Indian Market and offered flight seats for a very low price as compared to its competitors, it was able to pre-book a whopping 28,000 seats in just 48 hours. The other airline carriers delayed too late to counter the price war thrown by Air Asia and lost business to some extent.

PRICE WAR

THE PLAYERS

THEIR MARKET SHARES

Three firms control 89% of soft drink sales:

• 42.8% : Coca-Cola’s 25 brands and 139 varieties

• 31.1% : Pepsi’s 18 brands and 163 varieties

• 15% : Dr. Pepper Snapple Group’s 20 brands and 109 varieties

OLIGOPOLY IN SOFTDRINK INDUSTRY

• Normally, both of the firms use low-price strategy at the same time to maximize the market profits.

• A reduction in market price in an oligopolistic market structure is always beneficial for the consumers as it provides them with a variety of cheaper close substitutes.

• Steel industry is a classic example of oligopolistic industry.

• Steel industry due to its status as a core industry directly related to the infrastructural development of the country holds a unique position where the decisions made by a few players can affect the entire economy.

• The major players in the Indian scenario are:• SAIL (Steel Authority of India)

• TISCO (Tata Iron and Steel Co ltd)

• RINL (Rashtriya Ispat Nigam ltd)

OLIGOPOLY IN STEEL INDUSTRY

• The top 3 are called integrated producers and the rest are called secondary producers.

• Mild steel production constitutes 95% of total output and is controlled by the top 3.

• Oligopolistic nature of the industry is also helped by the treatment given to the steel industry by the government.

• The steel industry is going through a period of mergers and acquisitions where the smaller producers are being taken in by the larger firms, thus increasing the control over the industry.(Tata Corus takeover)

OLIGOPOLY IN SMARTPHONE OPERATING SYSTEMS

The most powerful two being Google Android and Apple iOS.

Few players in market

• Saudi Aramco

• Gazprom

• National Iranian oil co.

• Exxonmobil

• Petro china

PETROLEUM INDUSTRY

• MERITS:• Few competitors

• High profit margin

• Significant barriers of entry

• DEMERTS:• High initial investment

• Limited recourses

• Huge operating cost

• they try to act as a monopolist and try to raise the price and restrict the quantity

• Strict government control

MERITS & DEMERITS