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Briefly Explain Why Catel May Not Succed In Any Economy Including Kenya

1137 words - 5 pages

1. Briefly explain why cartels may not succeed in any economy including Kenya.
A cartel is a formal (explicit) agreement among competing firms. It’s a formal organization of producers and manufacturers that agree to fix prices, marketing and production. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogenous products. Cartels members maybe agree on such matters as prices fixing, total industry output, market shares, allocation of customers, allocation of territories and the division of profits. There are either private or public cartels.
One can distinguish private cartels from public cartels. In the public cartel a ...view middle of the document...

4. Over-production which breaks the price fixing - i.e. if firms produce excess output, this drives prices and profits down.
Game theory is often applied to the costs and benefits of operating a producer cartel - the classic Prisoners’ Dilemma suggests that collusion breaks down because there is an incentive for one or more firms to cheat because joint-profit maximization does not mean each firm is maximizing profits on their own.

2. Using relevant examples explain how a firm can acquire market dominance without involving in business malpractices.

1. Employing a low cost focus strategy.
This allows a large number of consumers to afford access to a company’s product or services which benefits the company as it steadily gains market share, eventually becoming dominant in its sectors .southwest airlines employed such a strategy in the U.S. where it offered fares that were 60-70 % cheaper than those offered by other carries. This enabled it to gain more than 50% market share in its top 75% routes while the next carriers averaged only 10%.

2. Constant improvement an innovation.
By being innovative and constantly improving a company’s line of products or services a company will not only be capable of keeping pace with the market, it will become a trend setters and industry leading light with positive influences on its market share. The wall Disney Company is a firm that embodies such an ethos and this can be traced back to its founder and creative genius
3. Pursuing a strategy of diversification
Diversifying into other product lines and sectors can not only help a company weather a bad period in its main line of business but the company can go on to become an industry leader in that market segment. The Walt Disney co. employed such a strategy as it escaped into home video. As at 1988, Disney video had captured and maintained the largest market share in the domestic home video industry in the United States, Pearce J. & Robinson R.; (pg 77)
4. Exploiting an emerging industry niche
Business environments change all the time and sometimes emerging trends are difficult to spot let alone take advantage of. But once one does so, the rewards are amazing. Block buster Entertainment Corporation was formed from taking advantage of a rapidly growing niche in specialty retailing-video rental stores. At the end of 1991, it had a market share of 13%. And its next largest competitor was a...

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