Identify and describe a real world example of an oligopoly.
Evaluate the following statement using economic reasoning: “A monopolist can charge whatever she wants because she is the only source available.”
Example answer:
“A monopolist can charge whatever she wants because she is the only source available”. This statement is not true because a monopolist cannot charge whatever she likes. She can only choose either what price to charge or what quantity to produce. Even though the monopolist uses control over the price of output, profit maximization means she cannot charge whatever price she wants. Sometimes, even the monopolist finds herself in situations where she has to reduce the price in order to sell more. But then again, if the monopolist knows what its customer want and want, as well as their buying behaviors, it can use price differentiation and take away consumer surplus. The way to do that will be to restrict output onto the market to take advantage of its leading position over a period of time, or as a way to raise the price. Once the monopolist chooses a price, she is forced to sell only so much as demanded by consumers at that price, given by the demand curve. On the other hand, the monopolist can use price discrimination to gain added profits by charging the maximum price only the maximum price that consumers will be willing to pay (Economics Online, n.d.).
References
Economics Online. (n.d.). Retrieved April 30, 2017, from http://economicsonline.co.uk/Market_failures/Monop…
Identify and describe a real world example of an oligopoly. What characteristics of this market fit the definition of an oligopoly? What role does advertising play in this market? Is this consistent with what you’ve learned about advertising and oligopoly in this course?
Example answer:
First and foremost, Oligopoly is a market in which the sellers have control to raise the product price. In oligopoly market, the sellers produce products that are identical, with the same features and inputs, which create a high level of interdependence. The fact that they depend on each other encourages competition in non-price-related areas, like advertising and packaging (Monopoly Power, n.d.).
The soft drink market is dominated by a handful of companies, however the two most powerful and popular ones are Coca Cola and Pepsi. Coca cola newest advertisement for has been the name on the bottle. Even if people with names that are not as common as “Maria” and “Ashley” were not that thrilled about the whole idea, other people loved it. It is kind of cool for one to have their name on the bottles Customers loved it because it is kind of cool for one to have their name on the bottles. As for Pepsi, they just recently adapted the same advertising technique but instead of having people’ name printed on the bottle they feature some of the most inspiring and famous music quote. Advertisement plays a great role in this market because there are so many other choices out there that companies need to always reinvent themselves and their products to motivate people to buy their product instead of the others (Miller, 2015). As far as I am concerned, it is consistent with what I learned about oligopoly during the weekly forum and about advertising in general.
Reference
Miller, M. (2015, June 15). Pepsi Takes Aim at Coke’s Polar Bear and Share-a-Coke Campaigns – brandchannel:. Retrieved April 30, 2017, from http://brandchannel.com/2015/06/15/pepsi-direct-ai…
Monopoly power. (n.d.). Retrieved April 30, 2017, from http://economicsonline.co.uk/Market_failures/Monop…
Oligopoly Examples. (n.d.). Retrieved April 30, 2017, from http://examples.yourdictionary.com/oligopoly-examp…
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