7.2 OligopolyWhat happens if there

7.2 Oligopoly
What happens if there are just a few firms that dominate the market? Will they compete or get toghether?
Oligopoly occurs when just a few firms between them share a large proportion of the industry.
There are, however, significant differences in the structure of industries under oligopoly and similarly significant differences in the behaviour of firms. The firms may produce a virtually identical product (e.g. metals, chemicals, sugar and petrol). Most oligopolists, however, produce differentiated products (e.g. cars, soap powder, soft drinks and banking service). Much of the competition between such oligopolists is in terms of the marketing of their particular brand. Marketing practices may differ considerably from one industry to another.
The two key features of oligopoly
Despite the differences between oligopolies, there are two crucial features that distinguish oligopoly from other market structures.
Barriers to entry
Unlike frims under monopolistic competition, there are various barriers to the entry of new firms. These are similar to those under monopoly (see page 145). The size of the barriers, however, will vary from industry to industry. In some cases entry is relatively easy, whereas in others it is virtually impossible.
Interdependence of the firms
Because there are only a few firms under oligopoly, each firm will have to take account of the others. This means that they are mutually dependent: they are interdependent.
Each firm is affected by its rivals’ actions. If a firm changes the price or specification of its product, for example, or the amount of its advertising, the sales of its rivals will be affected. The rivals may then respond by changing their price, specification or advertising. No firm can therefore afford to ignore the actions and reactions of other firms in the industry.
It is impossible, therefore, to predict the effect on a firm’s sales of, say, a change in its price without first making some assumption about the reactions of other firms. Different assumptions will yield different predictions. For this reason there is no single generally accepted theory of oligopoly. Firms may react differently and unpredictably.

Competition and collusion
Oligopolists are pulled in two different directions:
 The interdependence of firms may make them wish to collude with each other. If they can club together and act as if they were a monopoly, they could jointly maximise industry profits.
 On the other hand, they will be tempted to compete with their rivals to gain a bigger share of industry profits for themselves.
These two policies are incompatible. The more fiercely firms compete to gain a bigger share of industry profits, the smaller these industry profits will become! For example, price competition drives down the average industry price, while competition through advertising raises industry costs. Either way, industry profits fall.
Sometimes firms will collude. Sometimes they will not. The following sections examine first collusive oligopoly (both open and tacit), and then non-collusive oligopoly.
Industry equilibrium under collusive oligopoly
When firms under oligopoly engage in collusion, they may agree on prices, market share, advertising expenditure and so on. Such collusion reduces the uncertainty they face. It reduces the fear of engaging in competitive price cutting or retaliatory advertising, both of which could reduce total industry profits.
A formal collusive agreement is called a cartel. The cartel will maximise profits if it acts like a monopoly: if the members behave as if they were a single firms. This is illustrated in figure 7.3.
The total market demand curve is shown with the corresponding market MR curve. The cartel’s MC curve is the horizontal sum of the MC curves of its members (since we are adding the output of each of the cartel members at each level of marginal cost). Profits are maximised at Q1 where MC = MR. The cartel must therefore set a price of P1 (at which Q1 will be demanded).
Having agreed on the cartel [rice, the members may then compete against each other using non-price competition, to gain as big a share of resulting sales (Q1) as they can.
Alternatively, the cartel members may somehow agree to divide the market between them. Each member would be given a quota. The sum of all the quotas must add up to Q1. If the quotas exceeded Q1, either there would be output unsold if price remained fixed at P1 or the price would fall.
But if quotas are to be set by the cartel, how will it decide the level of each individual member’s quota? The most likely method is for the cartel to divide the market between the members according to their current market share. That is the solution most likely to be accepted as ‘fair’.
In many countries, cartels are illegal-being seen by the government as a means of driving up prices and profits, and thereby as being against the public interest. Where open collusion is illegal, firms may simply break the law or get around it. Between 1990 and 1994, for example, Mayne Nickless, Ansett Transport Industries and TNT industries operated a freight cartel for which they were fined over $11 million. Another example occurred in 2000 when three firms that make vitamins for animal feed were fined $26 million for price fixing. Executives of Roche, BASF and Aventis Animal Nutrition met in secret to drive up price.
Alternatively, firms may stay within the law, but still tacitly collude by watching each other’s prices and keeping theirs similar. Firms may tacitly ‘agree’ to avoid price wars or aggressive advertising campaigns.

Hasil (Bahasa Indonesia) 1:

7.2 OligopoliApa yang terjadi jika ada beberapa perusahaan yang mendominasi pasar? Akan mereka bersaing atau toghether?Oligopoli terjadi ketika hanya beberapa perusahaan antara mereka berbagi sebagian besar industri. Ada, bagaimanapun, perbedaan yang signifikan dalam struktur industri di bawah Oligopoli dan demikian pula perbedaan yang signifikan dalam perilaku perusahaan. Perusahaan dapat menghasilkan sebuah produk yang hampir identik (misalnya logam, bahan kimia, gula dan bensin). Kebanyakan preciously Oligopoli, namun, menghasilkan dibedakan Produk (misalnya mobil, sabun bubuk, minuman ringan, dan layanan perbankan). Banyak persaingan antara preciously Oligopoli tersebut adalah dalam hal pemasaran merek tertentu mereka. Praktik pemasaran mungkin berbeda dari satu industri yang lain.Dua fitur utama dari OligopoliMeskipun perbedaan antara oligopolies, ada dua fitur penting yang membedakan Oligopoli dari struktur pasar lainnya.Hambatan masukTidak seperti frims di bawah kompetisi monopoli, ada berbagai hambatan masuk dari perusahaan-perusahaan baru. Ini serupa dengan yang di bawah monopoli (Lihat halaman 145). Ukuran hambatan, namun, akan bervariasi dari industri untuk industri. Dalam beberapa kasus masuk relatif mudah, sedangkan orang lain hampir mustahil.Ketergantungan perusahaanKarena ada hanya beberapa perusahaan di bawah Oligopoli, setiap perusahaan harus mempertimbangkan orang lain. Ini berarti bahwa mereka saling tergantung: mereka saling. Each firm is affected by its rivals’ actions. If a firm changes the price or specification of its product, for example, or the amount of its advertising, the sales of its rivals will be affected. The rivals may then respond by changing their price, specification or advertising. No firm can therefore afford to ignore the actions and reactions of other firms in the industry. It is impossible, therefore, to predict the effect on a firm’s sales of, say, a change in its price without first making some assumption about the reactions of other firms. Different assumptions will yield different predictions. For this reason there is no single generally accepted theory of oligopoly. Firms may react differently and unpredictably.Competition and collusionOligopolists are pulled in two different directions: The interdependence of firms may make them wish to collude with each other. If they can club together and act as if they were a monopoly, they could jointly maximise industry profits. On the other hand, they will be tempted to compete with their rivals to gain a bigger share of industry profits for themselves.These two policies are incompatible. The more fiercely firms compete to gain a bigger share of industry profits, the smaller these industry profits will become! For example, price competition drives down the average industry price, while competition through advertising raises industry costs. Either way, industry profits fall. Sometimes firms will collude. Sometimes they will not. The following sections examine first collusive oligopoly (both open and tacit), and then non-collusive oligopoly. Industry equilibrium under collusive oligopolyWhen firms under oligopoly engage in collusion, they may agree on prices, market share, advertising expenditure and so on. Such collusion reduces the uncertainty they face. It reduces the fear of engaging in competitive price cutting or retaliatory advertising, both of which could reduce total industry profits. A formal collusive agreement is called a cartel. The cartel will maximise profits if it acts like a monopoly: if the members behave as if they were a single firms. This is illustrated in figure 7.3.The total market demand curve is shown with the corresponding market MR curve. The cartel’s MC curve is the horizontal sum of the MC curves of its members (since we are adding the output of each of the cartel members at each level of marginal cost). Profits are maximised at Q1 where MC = MR. The cartel must therefore set a price of P1 (at which Q1 will be demanded). Having agreed on the cartel [rice, the members may then compete against each other using non-price competition, to gain as big a share of resulting sales (Q1) as they can. Alternatively, the cartel members may somehow agree to divide the market between them. Each member would be given a quota. The sum of all the quotas must add up to Q1. If the quotas exceeded Q1, either there would be output unsold if price remained fixed at P1 or the price would fall. But if quotas are to be set by the cartel, how will it decide the level of each individual member’s quota? The most likely method is for the cartel to divide the market between the members according to their current market share. That is the solution most likely to be accepted as ‘fair’. In many countries, cartels are illegal-being seen by the government as a means of driving up prices and profits, and thereby as being against the public interest. Where open collusion is illegal, firms may simply break the law or get around it. Between 1990 and 1994, for example, Mayne Nickless, Ansett Transport Industries and TNT industries operated a freight cartel for which they were fined over $11 million. Another example occurred in 2000 when three firms that make vitamins for animal feed were fined $26 million for price fixing. Executives of Roche, BASF and Aventis Animal Nutrition met in secret to drive up price. Alternatively, firms may stay within the law, but still tacitly collude by watching each other’s prices and keeping theirs similar. Firms may tacitly ‘agree’ to avoid price wars or aggressive advertising campaigns.