Microeconomics for Homogenous or Differentiated- myassignmenthelp

Question: Discuss about theMicroeconomics for Homogenous or Differentiated Product. Answer: Oligopoly market is a form of imperfectly competitive market, where only a few sellers engage in selling either homogenous or differentiated product. The structure of oligopoly market lies between pure monopoly and that of monopolistic competition. When sellers in the oligopoly market are sell homogenous product then it is called pure oligopoly (Baumol Blinder, 2015). A differentiated oligopoly is one where firms sell differentiated product. The other forms of oligopoly market include collaborating oligopoly and competing oligopoly. In the oligopoly market, before choosing decision regarding own price and output firms have the opportunity to establish pairwise collaborative links with opposition firm. The collaboration is formed with the objective of reducing production cost. The various collaborative links together form a collaboration network. The firms collaborate with other firms in order to share information regarding market condition, new technology as well as to bear the joint cost of production (Kolmar, 2017). Collaboration between firms generally strengthen the competitive position of collaborating firms. The interim collaboration thus have an important effect on function of firms in the market. In a collaborative oligopoly, when some firms have lot of links while others have a relatively few links then this forms asymmetric collaboration. Another feature of collaboration is intransitive relation. There might be a link between firm A and B, and B and C but no link between A and C. In contrast to a collaborating oligopoly, in a competing oligopoly each firms compete with their rival firms. The most common form of competition is the price competition among the rival firms. One striking feature of competing oligopoly is that the market demand is not described by the conventional demand curve (McKenzie Lee, 2016). The price rigidity in this form of market is captured by the kinked demand curve. The demand curve is kink shaped because of the asymmetric behavior pattern of different sellers. When one firm increases price then other will not follow the same as higher price leads to a reduction in market price. Every unit price increase is thus goes unnoticed by the rival sellers. The same does not hold for price decrease. When one firm reduces price, others follow the same strategy to increase its market price. This triggers a price war among rivals. If price in the oligopoly market is completely rigid, then firms do not have incentive to change its price. Firms then concentrate on non-price competition. The non-price competition occurs when firm aims to maximize its sales and revenue with strategy other than reducing price (Moulin, 2014). An alternative strategy of price competition is to spend money of advertising. By spending on advertisements firms seek to update profile of their products and increase brand loyalty. This will then help to enhance sales of the firm. Advertising plays a key role in oligopolies like cars and soft drinks. Firm can alternatively introduce a loyalty card to its customers to provide a greater assurance to the buyers. Firms in the oligopoly market can differentiate their product from its rival to increase their revenue and sales. The various ways to differentiate product include improvement in product or service quality, add some extra features to its product and other. The antitrust system has always faced problem with oligopolistic market structure. The difficulties lies in the inherent structure of the market. In real world, the oligopoly market is more common than pure monopoly. Here, a few large firms dominate the industry with perfect legitimacy. A successful business that is running profitable business operation continues to grow overtime and expand its size (Cowen Tabarrok, 2015). The oligopolistic sellers always seeks opportunities for anti-competitive business. Consider for example if few large firms dominate the copper industry then their independent strategy determines the price of copper in the industry. Now, if the firms decide to collude and takes joint decision of setting a high price with supplying a relatively small industry output then this violates the Sherman Antitrust act. The earned profit is then divided by the firms in collusion each earning significantly higher profit margin. By forming cartel or any other form of collisio n thus these firms eliminate market competition, which is illegal (Carlton Perloff, 2015). The implementation of antitrust laws thus become necessary in the oligopoly market to prevent such collision and anti-competitive behavior. Oligopoly market is characterized by dominance of few large firms. Depending on the nature of product oligopoly market is of two types- pure oligopoly and differentiated oligopoly. In collaborative oligopoly two or more firms build a collaborative link to strengthen their position in the market. Both price and non-price competition occur in the oligopoly market. The price competition often triggers a price war in the market. Lastly, firms in the oligopoly market has a tendency to violate antitrust law by forming cartel or collision. References Baumol, W. J., Blinder, A. S. (2015).Microeconomics: Principles and policy. Cengage Learning. Kolmar, M. (2017). Firm Behavior in Oligopolistic Markets. InPrinciples of Microeconomics(pp. 281-300). Springer, Cham. McKenzie, R. B., Lee, D. R. (2016).Microeconomics for MBAs. Cambridge University Press. Moulin, H. (2014).Cooperative microeconomics: a game-theoretic introduction. Princeton University Press. Cowen, T., Tabarrok, A. (2015).Modern Principles of Microeconomics. Palgrave Macmillan. Carlton, D. W., Perloff, J. M. (2015).Modern industrial organization. Pearson Higher Ed.