Oligopolistic Industries The beer manufacturing industry in the U.S. includes do

Question

Oligopolistic Industries The beer manufacturing industry in the U.S. includes dozens of independent firms. Yet the American beer industry is regarded as one of the most oligopolistic industries in the country. Why is this? Monopolies and Patents The poinsettia is a wildflower native to Mexico. It was almost unknown in the U.S. until the Ecke family began selling them in the early 1900s from their flower stand in California. A member of the Ecke family discovered a grafting process that resulted in a much thicker and more colorful poinsettia plant, which became hugely popular at Christmas. The Ecke family did not attempt to patent the grafting process, but instead managed to keep the process a secret for many decades, and so maintained a monopoly on the commercial production of poinsettias for all those years. Eventually, a university professor figured out the grafting technique, and published it in an academic journal. What do you think happened to the price of poinsettias after publication of that article? Why?

Explanation / Answer

DQ1

In an oligopolistic industry, the firms are large in size and they dominate the market due to their size. Also, barriers to entry and exit are very high due to high fixed costs and supply chain issues. Both these conditions are satisfied in the beer industry, so it is considered an oligopoly.

DQ2

As the secret process is published and becomes public, the monopolist loses his business advantage, since other firms now have access to the same production process. As more and more firms replicate the production process, they can produce at a lower cost, and as a result market supply rises at the expense of the individual firm's output (market share). Higher market supply will reduce the price of poinsettias.

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