1) (a) What is market concentration and how can you know whether a market is con
ID: 1235399 • Letter: 1
Question
1) (a) What is market concentration and how can you know whether a market is concentrated or not? (b) What are the causes of market concentration? (c) Are business mergers good or bad for the economy? Explain why?2) Oligopolists are interdependent firms. (a) What is mean by that? Explain "strategic behavior" and relate that to the "Kinked Demand" model of oligopoly. (b) Explain the importance of mergers in oligopolistic markets. Is there much price competition in an oligopolistic market? Why or why not?
Explanation / Answer
A highly concentrated market is a small part of a market that has been identified generally by a small company in order to concentrate their efforts. For instance, a company might decide to offer a service converting cine films to video tapes; as long as this activity does not threaten the profitability of the manufacturers of either video tapes or cine films. It can establish a profitable niche in the market. The marketing muscle is aimed towards making the best of the concentrated market. The budget allocated for the highly concentrated market is funded towards garnering more amount of customer-base from the niche market An oligopolistic competition refers to a type of imperfect competition in which the market is controlled by a few large firms, each of which is able to influence market supply and demand by its action. In such a market each firm anticipates actions of its competitors and factors the into their decision making. In this way there is strategic independence among oligopolistic competitors. This interdependence does not impact the customers directly. However, by influencing the competitive strategy of the suppliers, it has significant impact on value received by customers. Because of this interdependence, the oligopolstic firms do not find it profitable to increase their price very much above those of their competitors. This adds an element of rigidity in the prices. This tends to benefit the customers by keeping prices at comparatively lower level a compared to monopolistic market price.
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