Glamor Economics

Chapter 69

Chapter 10 Section 3 Only a few people have the final say in the market——Oligopoly

In 1977, a brash Brit Freddie?Lake broke into the air transportation market and started an airline named "Lake".He operated a flight from London to New York at $135, well below the lowest fare at the time of $382.There is no doubt that the business of Lake has continued since its establishment. In 1978, Lake was awarded the title of Knight of the British Empire.By 1981, Sir Freddie's annual turnover reached 5 million US dollars, which made his opponents (including some world-renowned old companies) furious.But the good times didn't last long, and Lake went bankrupt in 1982 and has since disappeared.

What happened?The reason is simple. Competitors, including Pan Am, Universal, British Airways and others, made a concerted effort to lower fares significantly below Lake's list price.Once Lake was gone, their ticket prices went right back up to their old highs.What's more serious is that these companies also reached an agreement to use their respective influences to prevent major financial institutions from lending to Lake, making it difficult for them to raise funds to fight and further accelerating Lake's bankruptcy.

This case has clearly revealed the threat signal, that is, if anyone else tries to join the transatlantic aviation market, he must seriously consider the possible bankruptcy danger.

The so-called oligopoly is a kind of monopoly. It means that only a few enterprises supply products in a market, and they each occupy a relatively large share, and they set prices through agreement or tacit understanding.These enterprises are called oligopoly, so this kind of monopoly is also called oligopoly.

An oligopoly market refers to a market organization in which a few manufacturers control the production and sales of products in the entire market.Oligopoly market is considered to be a relatively common market organization, and many industries in western countries show the characteristics of oligopoly.For example, the automobile industry, electrical equipment industry, and canned food industry in the United States are all controlled by a few companies.

The main reasons for the formation of an oligopoly market are: the production of certain products must be carried out on a relatively large scale of production in order to achieve the best economic benefits; several enterprises in the industry control the supply of basic production resources required for production; the government's Nurturing and support, etc.It can be seen that the causes of an oligopoly market are very similar to those of a monopoly market, but differ in degree.An oligopoly market is a type of market organization that is closer to a monopoly market.

Oligopoly industries can be classified in different ways.According to product characteristics, it can be divided into pure oligopoly industry and differential oligopoly industry; it can also be divided into different types with collusion (that is, cooperation) and independent actions (that is, non-cooperation) according to the behavior of manufacturers.

The determination of price and output of an oligopoly firm is a very complicated problem.The main reason is: in the oligopoly market, the output of each oligopoly accounts for a relatively large share of the total output of the whole industry, so the changes in the output and price of each manufacturer will have an impact on the output and price of other competitors and the entire industry. weighty influence.Before taking a certain action, each oligopolistic firm must first speculate or master the impact of its action on other firms and the possible responses of other firms. Only after taking these factors into account can it take the most favorable action.So the profits of each oligopoly are affected by the interaction of the decisions of all firms in the industry.In general, an oligopoly cannot be modeled without knowing how competitors will react.In other words, there are as many models of oligopolistic firms as there are assumptions about how competitors will react, and as many different results can be obtained.Therefore, in Western economics, there is no oligopoly market model that can make a general theoretical summary of the determination of price and output in an oligopoly market.

OPEC is a form of oligopoly.Among OPEC members, Saudi Arabia is the largest and most influential.Its output generally accounts for 1/3 of OPEC's total output, and its oil storage also accounts for 40% of OPEC's total reserves.Usually, Saudi Arabia sets the price first or sets the price after negotiating with other members, and other members follow it. Even when the oil market is not good, they would rather reduce production than lower prices, so as not to cause disputes and cause mutual losses. .We call this oligopoly a price leader oligopoly.

[links to related words]

Oligarchy refers to a political system in which everything is controlled by a few rulers.In short, any country that is ruled by a few people, or a political system that is controlled by a few people, can be called an oligarchy.

(End of this chapter)