Economics :Oligopoly Pricing and the Importance of Interdependence

Question 3

The oligopoly in pricing has different influences that it generates to a business entity based on the role that it plays in the marketability of the products.  The production and marketability of the products that organizations deliver to the market are subject to high profits. The high profits that the businesses acquire from the interdependence of the businesses are made possible by the oligopoly in pricing (Bloch, and Bhattacharya, 2014). The competition, which the businesses are subject to be minimal, hence they are able to achieve higher profits from the oligopoly in pricing. The few numbers of the large firms in the market allow for the participation and generation of higher profits. In the oligopoly pricing, the product of two different companies is consolidated and reproduced in one company, thus making the company make more profit.

The participant businesses are able to determine the prices of the products that are produced by the company. This makes the companies have a great potential for generating profits, thus favoring the businesses as they are able to determine the prices alone. The interdependence in oligopoly pricing allows the businesses to make long-term profits from their operation (Kriesler, 2016). This is because, in the business, set up, the terms of operation discourage the entry of new operators in the market and prevents the old market shareholders from taking advantage of the marketability. The interdependence in oligopoly pricing helps in reduction of the cost of production in companies. This is because the production of goods from different companies is completed in one major production plant. Thus, there is the interdependence between different companies in the process of making the oligopoly pricing successful.

Question 5

Market structures play significant roles in the development of the business operations in most organizations, but the market structure is irrelevant in the determination of the profit. This implies that the market structure such as monopolistic structure is subject to the exploitation of the consumers. The profit determination in a market structure that aims at exploiting the consumer base cannot determine the profit it would gain from the consumers (Bove, Gleditsch, and Sekeris, 2015). This is because; the consumers are susceptible to other alternatives in the event a monopoly is dominant in the market. The market structure is also irrelevant in the determination of the profits from the fact that there may existent dissatisfied consumers. The consumers may regard a product as substandard to them, hence they would seek other brands of the same product.

The consumer behavior is unpredictable in a market since there are different consumers who have different preferences. Market profit cannot be determined by the structure of the market in this situation. Inferiority in the delivery of goods and services by different companies are also factors that make the market structure an irrelevant element in the determination of the prices. The market structure may be regarded as an inferior way of delivering the goods and the services to the consumer base. In this relation, the consumers would not prefer a market structure that is dominated by an individual company (Encaoua, 2014). Thus, the consumer would opt to buy goods and services from a supplier that is not attached to the undesirable structure. In this situation, the market structure is evidently not relevant aspect in the determination of profits that a company would gain. There are different alternatives that make the consumer prefer goods and services from a particular market structure.

 

Reference

Bloch, H. and Bhattacharya, M., 2014. Kurt Rothschild’s Heterodox Approach to Price Theory and Oligopoly. History of Economics Review, 60(1), pp.1-14.

Bove, V., Gleditsch, K.S. and Sekeris, P.G., 2015.“Oil above Water” Economic Interdependence and Third-party Intervention.Journal of Conflict Resolution, p.0022002714567952.

Encaoua, D., 2014. Kaplow, Louis: Competition policy and price fixing. Journal of Economics, 113(2), p.205.

Kriesler, P., 2016. Kalecki’sPricing Theory Revisited. In Post-Keynesian Essays from Down Under Volume I: Essays on Keynes, Harrod and Kalecki (pp. 141-160). Palgrave Macmillan UK.