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Oligopoly Essay

2562 words - 11 pages

This paper will focus on the behaviour of oligopolists and the situations they are confronted with in their daily business.

The paper is divided in three parts. The first part explains the basic keywords. The second part tries to explain the nice and the sad sides of an oligopolist, and will discuss the consequences of their behaviour.

As well, I will try to examine the statement "being an oligopolist is not easy", and whether it is true or whether the truth lies in between.

Aspects of Market Structure

The four types of market structure are listed in the drawing below:

Characteristics of an oligopoly


Oligopoly is a type of imperfect competition with a market ...view middle of the document...

So, he is faced with the first dilemma. We will go deeper into this topic later in the paper.

An oligopoly market is a market form, which is something between these two kind of extreme market situations. Companies in these markets have competition but   at the same time are not faced with too much competition so that they are price takers.

Now   we understand how economists define the various types of market structures, so we can continue our analysis.

Oligopoly is best defined by the conduct (or behaviour) of firms within a market rather than by its market structure.

Oligopolistic firms are very large, with high market concentrations. Oligopoly
is the dominant mode of organisation in many sectors of the economy. This concentration can be measured by looking at the market share of each company.   Table 1.1 shows that the market for vehicle testing is highly concentrated within 4 firms supplying almost 97% of the whole market.

Market Share Overview Dekra:

Germany 00 GJ (22 Mio.) 35,65% 46,58% 9,37% 5,20% 1,69% 0,51% 0,87% 0,14%
Germany 01 GJ (23,6 Mio.) 35,76% 45,11% 10,02% 5,86% 1,69% 0,52% 0,87% 0,17%
Germany 02 GJ (23,6 Mio.) 35,68% 44,26% 10,61% 6,46% 1,68% 0,49% 0,61% 0,21%
Germany 03 GJ (24,4 Mio.) 35,46% 43,27% 11,24% 6,93% 1,81% 0,44% 0,62% 0,24%
Germany 04 GJ (24,1 Mio.) 35,19% 42,56% 11,83% 7,28% 1,87% 0,40% 0,63% 0,24%
Germany 04 1 HJ (13,1 Mio.) 35,17% 42,78% 11,70% 7,21% 1,86% 0,41% 0,63% 0,24%
Germany 05 1 HJ (12,9 Mio.) 35,02% 41,84% 12,32% 7,66% 1,89% 0,38% 0,65% 0,24%
Germany Delta 04/05 in % -0,15% -0,94% 0,62% 0,45% 0,03% -0,03% 0,02% 0,00%

Concentration ratio

In economics, the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry.

An oligopoly is a form
of economy. Using the four-firm concentration ration,   an oligopoly is defined as a market in which the four-firm concentration ratio is above 40% according to Wikipedia.

In more general terms, a way of measuring market share is to look at the concentration ratio (CRN): The N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. We already covered the most used- CR4 - percentage of sales of the 4 top firms in the industry.

One measure of this ratio is the 5 firms concentration ratio which shows the market share of the 5 largest companies.

Normally an oligopoly exists when the top five firms in the market account for more than 60% of total market demand/sales. Relating to the index featured above, the market share for standard and emissions´ test remained approximately at over
98,76 % for the 5 top market players ( Dekra, TÜV,...

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