Research

Report
Topic: Oligopoly
Submitted to: Miss Sania

Submitted by:
Name: Muhammad abubakar
Roll No: BK596157
Course: Managerial Economics (8522)
Level: mba finance 3.5 years
Semester: Spring 2018

ME-8522-Assignment 2 Page 1
 ACKNOWLEDGEMENT

In the Name of Allah Almighty, Most Gracious, Most Merciful who has blessed us with
the physical and mental capabilities to complete the assigned project.

This assignment required contribution from many sources. Different people played an important
role in its preparation.

We owe special thanks and appreciation for the management of the Panther Tyres Limited.
Special gratitude I give to our teacher Miss Sania contribution in stimulating suggestions and
encouragement helped me to coordinate my project especially in writing this second assignment.

ME-8522-Assignment 2 Page 2
 ABSTRACT

An oligopoly is a type of a market structure in which there are only a few producers. Oligopolies
are prevalent in today’s reality. They are competitive: oligopolists compete with each other for
sales, yet they are imperfectly competitive. They do compete for sales, but also possess some
market power: the ability to raise market prices. Each oligopolist is not a monopolist, yet it can
affect market prices; its decisions about how much to produce affect market prices. Product
differentiation is also of utmost importance in oligopolies.

ME-8522-Assignment 2 Page 3
TABLE OF CONTENTS

1.0 Introduction

2.0 Types of Oligopoly

3.0 Oligopoly - How It Works and Why It Works

4. Key Features of Oligopoly

5.0 Practical study of the organization

6.0 Data Collection Methods

7.0 SWOT Analysis

08.0 Conclusion

09.0 Recommendations

10.0 References

ME-8522-Assignment 2 Page 4
 1.0 Introduction

Oligopoly refers to a market situation or a type of market organizational in which a few firms
control the supply of a commodity. The competing firms are few in number but each one is large
enough so as to be able to control the total industry output and a moderate. However, increase of
its output or sales will reduce the sales of rival firms by a noticeable amount.

This is surely the case if three to six or even ten firms control an industry’s output, with each
controlling enough to exert influence on price. Oligopoly is the most prevalent form of market
organization in the manufacturing sector at modern times and arises due to various reasons (such
as, economies of scale, patents and trademarks, control over the sources of raw materials,
government’s sanction, need of a large capital, and so on). The chief characteristic of oligopoly is
the interdependence among the rival sellers.

2.0 Types of Oligopoly

(a) Pure Oligopoly:

Here, the oligopolists sell practically homogeneous products. This type is
found in steel, copper, cement petrol and a few other industries.

(b) Differential Oligopoly:

In such a case a few firms sell similar but not identical products
under the same conditions. It is found in automobiles, tyres, electrical appliances, cigarettes,
baby food and a few other industries.

ME-8522-Assignment 2 Page 5
3.0 Oligopoly - How It Works and Why It Works

An oligopoly is a type of a market structure in which there are only a few producers.
Oligopolies are prevalent in today’s reality. They are competitive: oligopolists compete with each
other for sales, yet they are imperfectly competitive. possess market power: the ability to raise
market prices. Each oligopolist is not a monopolist, yet can affect market prices; its decisions
about how much to produce affect market prices. Product differentiation is also of utmost
importance in oligopolies. According to Krugman and Wells, probably the most important source
of oligopoly is the existence of increasing returns to scale, which give larger producers a cost
advantage over smaller ones. If these effects are very strong, they lead to a monopoly; if they are
not very strong, they lead to an industry with a small number of producers. For examples of
oligopolies, one can cite PC operating system, aircraft, diamonds, automobiles, movie
distributors, internet service providers. It is important to note that one cannot determine an
industry’s market structure only by considering the number of sellers. Indeed, many oligopolies
contain a number of small niche producers that do not actually compete with the major
producers. Oligopolies are common and highly conducive to explicit and tacit collusion, which
poses heavy legal problems.

4.0 Key Features of Oligopoly

1.0Few Sellers: Under the Oligopoly market, the sellers are few, and the customers are many.
Few firms dominating the market enjoy a considerable control over the price of the product.

2.0Interdependence: it is one of the most important features of an Oligopoly market, wherein,

the seller has to be cautious with respect to any action taken by the competing firms. Since there
are few sellers in the market, if any firm makes the change in the price or promotional scheme,
all other firms in the industry have to comply with it, to remain in the competition.

Thus, every firm remains alert to the actions of others and plan their counterattack beforehand, to
escape the turmoil. Hence, there is a complete interdependence among the sellers with respect to
their price-output policies.

ME-8522-Assignment 2 Page 6
3.0 Advertising: Under Oligopoly market, every firm advertises their products on a frequent
basis, with the intention to reach more and more customers and increase their customer base.This
are due to the advertising that makes the competition intense.

If any firm does a lot of advertisement while the other remained silent, then he will observe that
his customers are going to that firm who is continuously promoting its product. Thus, in order to
be in the race, each firm spends lots of money on advertisement activities.

4.0 Competition: It is genuine that with a few players in the market, there will be an intense
competition among the sellers. Any move taken by the firm will have a considerable impact on
its rivals. Thus, every seller keeps an eye over its rival and be ready with the counterattack.

5.0Entry and Exit Barriers: The firms can easily exit the industry whenever it wants, but has to
face certain barriers to entering into it. These barriers could be Government license, Patent, large
firm’s economies of scale, high capital requirement, complex technology, etc. Also, sometimes
the government regulations favor the existing large firms, thereby acting as a barrier for the new
entrants.

6.0 Lack of Uniformity: There is a lack of uniformity among the firms in terms of their size,
some are big, and some are small.

Since there are less number of firms, any action taken by one firm has a considerable effect on
the other. Thus, every firm must keep a close eye on its counterpart and plan the promotional
activities accordingly.

5.0 Practical study of the Organization

Panther Tyres Limited is a name of quality, reliability and superior standards for
manufacturing Tyres and Tubes for Motorcycle, Rickshaw, Tractor, Forklift, LTV, Scooter,

ME-8522-Assignment 2 Page 7
 Moped and Caravan.

The company was founded in 1983. More than 33 years of existence, company has evolved to
become one of the largest and leading suppliers and manufacturers of Tyres and Tubes in
Pakistan. Our competitive prices, superior quality and guaranteed after-sale services have
allowed us to establish and enjoy an excellent reputation amongst a wide customer base.

We are proud to be the market leaders in motorcycle tyres in Pakistan for both the OEM and
Replacement market. We are one of the largest exporters of tyres with strong footholds in
Asian, Middle East, African and European countries.

At Panther Tyres, with more than 5000 employees we are a collective of people, united and
working together to create and deliver our product with highest standards

6.0 Data Collection Method

We shall collect the data both from primary and secondary methods, in primary method we
collect the data directly from the organization practically or by asking questions from the
specialized persons, in secondary we collect the data from magazines, newspapers, internet
etc.

09.0 SWOT Analysis

STRENGTHS

ME-8522-Assignment 2 Page 8
 High Profits
Simple Choices
Competitive Prices
Better Information and Goods

WEAKNESS
Difficult To Forge A Spot
Less Choices
Fixed Prices Are Bad For Consumers
No Fear Of Competition

OPPURTUNITIES
Lowering barriers to entry

Antitrust laws

Price ceilings

Additional resources

THERATS
In oligopoly few companies become large which results in concentration of power and these
companies just because of their sheer size do not allow small companies in the industry to
flourish and due to it creativity of small companies go unnoticed as they are just not able to
make profits because of big companies having the last word in the industry. It creates unrest
and frustration in the minds of general public because oligopoly adds to rich poor divide and
people are never happy when few industrialists are making huge profit at the cost of public
money.

10.0 Conclusion

Oligopoly is much more like monopoly; however, rather than there being only one firm, there

ME-8522-Assignment 2 Page 9
 are a few very large firms. As one would imagine, dividing the market among four or five
firms means that each firm wields considerable market power. Each firm certainly has less
market power than a monopolist, but the firms together have substantial control over market
price and quantity. Oligopolistic firms recognize the size and strength of their rivals, and this
recognition affects an oligopolistic firm’s decision making process.

11.0 Recommendations

Large Investment of Capital

Control of Indispensable Resources

Legal Restriction and Patents

Economies of Scale

Superior Entrepreneurs

Mergers

Difficulties of Entry into the Industry

12.0 References

"Competition Counts". 11 June 2013. Retrieved 23 March 2018.

Perloff, J. Microeconomics Theory & Applications with Calculus. page 445. Pearson 2008.

Hirschey, M. Managerial Economics. Rev. Ed, page 451. Dryden 2000.

Negbennebor, A: Microeconomics, The Freedom to Choose CAT 2001[page needed]

ME-8522-Assignment 2 Page 10
ME-8522-Assignment 2 Page 11