Oligopoly

The paper will identify the market structure, along with elasticity of the product and will also include the way the pricing will relate to elasticity of the product. Furthermore, the paper will include the way the changes in the quantity supplied as a result of the pricing decisions will affect marginal cost and marginal revenue. Moreover, the paper will focus on the non-pricing strategies, and will explain the way the changes in the business operations could alter the mix of fixed and variable costs In line with the strategy.

Market Structure

The market structure of C.V. Pharmacy is an oligopoly. It is a market structure in which a small number of organizations sell either differentiated or standardized products in which other organization’s entry Is difficult. In this market structure, the control of the firm Is Limited over price of the product due to mutual Interdependence (with the exception of when there Is conspiracy surrounded by the organization) and in which there is a non-pricing rivalry (McConnell and Bruce, 2004). The oligopoly turn out is the most common structure of big -business as the establishment of trust was limited in the United States.

Evasion of pricing rivalry has urine out to be nearly automatic with four or five larger firms accountable for most of the output of every Industry. If an organization were to drop the prices, it is expected that their competition will do the same and all will undergo a lower profit. Conversely, it is unsafe for any singular firm to increase their prices as the others will hold the prices with the intention of gaining a share of the market. “The safest strategy is to never lower prices and raise prices only when there is abundant evidence that the other firms will also raise prices.

When business conditions permit, the price leader will raise their prices with the expectation that others will follow (McConnell and Bruce, 2004). Price Elasticity “Price elasticity tells how much of an impact a change in price will have on the consumers’ willingness to buy that item. If the price rises, the law of demand states that the quantity demanded of that item will decrease” Unifier Tuck, Churn Small Business, 2013). Price elasticity of demand Indicates the decrease in the quantity extremely sensitive to a change in prices.

Generally, a product which has numerous bustiest or is not a necessity has demanded elasticity. Elastic demand indicates that the customers of the product are not extremely sensitive to price alterations. Upon analysis of elasticity of pharmaceutical products, it is certain that pharmaceutical products cannot be considered as a necessity. Medication is considered to be a basic item, essential for the prevention and treatment of ailments and disease and, consequently, they have a particular, non-substitutive tenacity and thus are not a necessity.

It indicates, consequently, that they cannot be considered as elastic. While it is factual for some branded goods with little rivalry, the demand for more crowded beneficial classifications where there are generic equivalents or rival satisfying substitutes can be highly elastic. It indicates that changes in price are met in relation to the quantity with larger changes demanded. For pharmaceutical makers, the primary goal is to realizing the degree of price elasticity.

Pharmaceutical makers, for better understanding price elasticity, utilize a range of methods for assessing price elasticity, comprising quantitative search, qualitative research, and retrospective data analysis assessing the effects of a number of levels on prescription demand (Brent L. Rollins, Matthew Peers, 2013). Marginal Cost & Revenue A way to determine the quantity of profit minimization is to conclude where marginal revenue equals marginal costs. Rather than computing the profit for all levels of sales; total revenue and total variable costs are considered.

Marginal revenues and marginal costs are considered in a similar way like marginal profit, thus defining the amount of change for all sales’ levels (Hater, 2012, p. 2). Pricing & Non-pricing Strategies C.V. needs to think through numerous elements impacting its’ business. Pricing strategies, rivals and their current products, consumer demands and suppliers are examples of these elements. For pricing strategies, C.V. should consider closeouts, discounts, product bundle pricing, penetration pricing, geographical pricing, and membership or trade pricing.

For non-pricing strategies, options comprise: enhanced service quality, longer opening hours, advertising, and extended warranties (Simmons, n. D. ). By pricing similar products in a different way they must Ochs on regional demographics because geographic pricing enables the minimization of profit. For promoting unique or new products at provisional price drops, penetration pricing is the most effective. Finally, bundle pricing and closeouts can be engaged when several seasonal goods need to be sold off to avoid a loss (Simmons, n. D. . Enhanced service quality, longer hours and advertising needs to be included in the non-pricing strategies. Advertising grabs the attention of the consumer to the brand and engages them, making them conscious of promotions and sales. Longer hours enables the organization the opportunity to service more clients?”the fisherman with the biggest net catches the most fish”. In the end, the automated verification and dispensing systems’ implementation will boost the quality of the counsel the patient and provide better customer service.

Barriers to Entry In the retail pharmacy industry, cost is the main barrier to entry. Economies of scale, as an incumbent, enable C.V. to purchase larger quantities at lower rates due to a longer relationship with suppliers because they are purchasing in bulk. These advantages allow C.V. to lower prices while maintaining profit. New entrants would not be capable of adequately competing with the old firms and do not enjoy these same benefits (Anonymous, 2012). Current Global Economic Conditions In the past six months, global economic conditions have developed.

Policymakers of advanced economy effectively resolved two of the major short-term threats to global activities?the threat of a sharp monetary reduction in the United States and a Euro area breakup. In response, according to the latest World Economic Outlook of MIFF, uncial markets have rallied, and financial constancy has developed. In 2013, the report predicts real global growth of Gross Domestic Product of 3. 3% on a basis of yearly average, almost the similar as the 3. 2% growth perceived in 2012, and the International Monetary Fund anticipates the growth to increase to 4% in 2014 (Thomas Helping, 2013).

The Pharmaceutical Industry of United States is one of the supporters of the US Economy. It has been perceived that the Pharmaceutical Industry of the United States is developing quickly and is demonstrating no indications of slowing down. The growth of the pharmaceutical industry in the U. S. Is also recognized as playing a very important part in the pharmaceutical industries around the world. Some experts have said that in the development of the United States’ pharmaceutical industries, media has played a key role. Experts have seen the major influence in the way the media has provoked health awareness among the people.

Current Business Cycle’s Stage of the U. S. Economy

Currently, the economy of the United States is in a stage of mid-cycle expansion. As indications of economic development seem to be gaining momentum, equity markets eave solidly performed this year. In recent times, a boom in domestic energy and an increase in the housing market have been seen; while employment carries on to develop and grow. Early this year, the fiscal cliffs resolution stopped a self-inflicted damage to the economy, letting development force to endure. The index of US Leading Indicators?made up of 10 economic components that historically have had strong predictive power on GAP growth?also appears to confirm that growth remains intact. ” (Matthew Rubin, 2013). However, current indications are becoming a reason for concern. The overdue impacts of payroll tax modification and monetary reduction through repossession has seemed to surprise financiers. Current Credit Market Conditions For consumers and for business loans, interest rates are lower this year compared to any other year.

Credit exchange of U. S. Government like discount, FRR and Prime rate are much lower. For example, there is a Prime rate of 3. 25% and 10% more consumer restricted and not given as easily as in the previous years. (“Beige book,” 2013) All these signs demonstrate that the market is starting to move and customers are ginning to buy and are content with the existing economy. C.V. Pharmaceutical can invest in the market on this uptime by marketing with intention of attracting more customers. Conclusion The market structure of the C.V. Pharmacy is an oligopoly.

It is a market structure in products in which other organization’s entry is difficult. Price elasticity of demand indicates the decrease in the quantity demanded. Elastic-demand indicates that the customers of the service or good are extremely sensitive to change in prices. C.V. needs to think through numerous elements impacting its’ business so they may run monthly. If C.V. modifies the way they do business, they can impact their bottom line in many ways. In the past six months, global economic conditions have developed.

Policymakers of advanced economy effectively resolved two of the major short-term threats to global activities?the threat of a sharp monetary reduction in the United States and a Euro area breakup. The Pharmaceutical Industry of United States is one of the supporters of the US Economy. It has been perceived that the Pharmaceutical Industry of United States is developing speedily and is demonstrating no indications of lowering down. Currently, the economy of United States is in a stage of mid-cycle expansion.

This essay focuses on the tobacco industry with respect to its oligopolistic market structure. The basic characteristics of the oligopoly are discussed and followed by the identification of the tobacco industry as a tight oligopoly. The various market forces and the resulting threats associated with the market structure are then elaborated upon. Oligopoly is a market structure where there are a few sellers for a product or a service.

It is the most prevalent form of market organization in which the few sellers might sell homogeneous or differentiated products depending on the type of the industry. Some of the products such as steel are homogeneous while some other products like cigarettes are a part of the differentiated product line in the oligopolistic industry. The action of each firm in the industry affects the other firms. The Sweezy’s kinked demand curve model of oligopoly explains the asymmetry in the response of other firms to one firm’s price change (Peterson & Lewis, 1999).

Since the price competition in the oligopoly market structure can be ruinous, the different firms compete with each other on the basis of non-price competition factors such as product differentiation, advertising and other marketing strategies. The interdependence and the rivalry amongst the firms form the most distinguishing characteristic of the oligopoly market structure. The type of product produced may affect the strategic behavior of the Oligopolists. The cooperative Oligopolists follow the pattern followed by the rival firms unlike the non-cooperative Oligopolists.

Depending on the type of oligopoly and the type of product, each firm tries to make an impact in the existing market structure and have an effect on the rival firms. The tobacco industry follows the model of the cooperative oligopolistic industry with the firms selling differentiated products. The tobacco industry in the US is a tight oligopoly. The market share of the cigarette industry is shared amongst four top companies. The market is dominated by four key manufacturers known as Big Tobacco.

According to a data regarding the market share of the US cigarettes in 2003, the top two firms are Philip Morris and R. J. Reynolds. They own 72 % of the market share while the next two companies Lorillard and British American Tobacco (Brown and Williamson) account for the next 18 %. Apart from the leading cigarette manufacturers other companies such as DIMON and Universal Corporation are involved in selling other tobacco related accouterments. Altadis manufactures 50% of the cigars in the US. With the threat of law suits and the growing limitations on the marketing channels, the industry keeps a tight check on the entry of new entrants, thus maintaining the oligopolistic situation of the industry.

Table of Contents Introduction The objective of this report is to provide Mr.. Paul Harvey, president with the detailed reasoning for the decisions recommended and also to figure out which products are losing money. As the company is operating in an oligopoly and has somewhat medium market share, setting our own prices is not an option. The giant Samara announces the prices for the products annually, and the other eight companies in the industry follow the price. Problem The organization underwent management change in early 2004.

The company lost $690,000 (Refer to appendix 1) in that year, which resulted in a low morale of the employees. They have lost faith in the management and have low motivation level. So, a decision has to be made regarding the production of three products I. E. 101, 102 and 103. Recently the giant in the industry Samara decided to lower the selling price for the product 101 and a final decision has to be made, if the organization should lower the selling price or not? Key Success Factors Looking at the share of industry sales rate, for product 101 its 12%, for 102 its 8% and for 103 its 10%.

The company has to increase its market share to be able to generate positive income. The second most important aspect is costs. As all the products are manufactured in separate factories and they operate below capacity, it’s hard to control the costs especially the fixed costs. Even though all the factories are horizontally integrated with shared production process facilities, it doesn’t help keeping the costs in check. The employees seem to be disappointed with the new management and have a low morale. They are not exactly motivated to try harder to make a positive impact.

Operating in an oligopoly, where prices are controlled by another firm, Superior has no control over the selling prices so, the company should Ochs on keeping costs minimum and increasing their industry sales rate. There is no compensation and reward system to Judge the performance of employees. Situation Analysis I started off with analyzing income statement for 2004 to get a better understanding of the situation and to figure out which products are generating profit and which ones are responsible for the loss.

After reviewing the data from 2004 it was found that only the product 101 is generating income and the other two products 102 and 103 are losing money (Refer to appendix 1 . 1). As I wanted to be ere that the information provided was accurate I took the liberty of following contribution margin income statement. Also I found a couple of additions errors in the 2004 and 2005 income statement. I have highlighted the mistakes in red in appendix 1. 1 and appendix 2.

Decision Regarding Dropping Products After categorizing all the costs into fixed and variable costs based on the information provided by the accounting department, I came to find out the fixed costs for factory 101 ,102 and 103 are $1 and respectively (Refer to appendix 1 . 1). The respective factories will have to incur these costs even if they continue the production. The contribution margins for factories 101, 102 and 103 are and respectively. So, even if products 102 and 103 are losing money they are still contributing to fixed costs by the same amount as their contribution.

This suggests that if the production is discontinued the company would be incurring an extra loss of Thus, I tend to agree with Mr.. Harvey decision of continuing production of product 103 and the other two products. For further details please refer to appendix 1. 1 . Appendix 1. 2 shows that if 113,766 additional units are sold for product 102 and 162,41 5 units of product 103. The company would of have made a profit of $2,999,000. The reason for not meeting the targets could be because of low morale of the employees. If we compare the predicted income statement for 2005 and the actual performance (Refer to appendixes 1. And 2). The Variances of rent, indirect labor and depreciation are $259,000 $213,000 and $642,000 respectively are all favorable. It’s safe to say that these three costs, which are all fixed costs, are the main factors for the improvement in profitability during the period January 1 to June 30, 2005. In a nutshell if fixed costs are controlled the company can do really well (Refer o appendix 1. 3 and appendix 2). Decision Regarding the Price for Product 101 The decision regarding the price of product 101 is based on the income statement of 2005 from January 1st to June 30th (Refer to appendix 3. ). The appendix has both income statement with selling price set as $24. 5 and $22. 5. It has been forecasted that if the price is dropped to $22. 5, the organization would be able to sell 1 million units. On the other hand if the organization decides to continue with the same that they are following at the moment, 750,000 units can be sold for first six months of year 2006. Here I would like to point out that these forecasts are not accurate and there may be a difference between what is predicted and the actual sales but for now I think that’s an appropriate estimation as any.

The forecasted income statements are based on the unit price per 100 lbs from first half of 2005 income statement. It is noted that the income statement with the price $22. 5 gives a higher contribution margin (10,468,490. 86) compared to the one with price $24. 5 (11,979,587. 82). These figures include the 5 percent reduction in the prices of materials and supplies and the discount on selling prices. The income statement shows that a higher operating income can be generated if the selling price set by Samara is followed (Refer to appendix 3. 2). The reason for that is the fixed costs will remain constant within the relevant range.

So, I have decided to take the fixed costs from the 2005 Unary I-June 30) income statement. Since with the selling price $22. 5 gives a higher contribution margin, the company will lose less money (- $334,043. 07) to be exact (Refer to appendix 3. 2). Also if 31,803 additional units are sold, the company can breakable for product 101 . On the other hand 135,459 additional units would be required to breakable if the current price is kept. Also it doesn’t seem a good idea keeping the prices higher than the rest of the seven firms, costumer might not appreciate and it’s of utmost important the company maintains its market share if not improve.

Conclusion & Recommendation Since it has been established that dropping any of the products doesn’t benefit the company in any way, I would like to suggest keeping all the products. The company could do really well if the sales target are met and for that the motivation level of the employees needs to be high. So, my recommendation to motivate employees would be to set up a performance based reward and compensation system, which would keep the employees motivated, especially the sales force to do better.

Another thing that can be done is rather than paying the sales force a fixed salary, they should be paid a commission based salary which would give rise to a sense of competition for sales people to do better and based on their sales they could be properly rewarded. For product 101, my analysis suggests that, the price set by Samara should be follow not Just because the organization will save itself from heavy losses but also its essential for the company to maintain its current industry sales share and having a higher price than the other firms could draw the customer away and then the organization would have bigger problems.

Fixed costs need to be controlled and monitor strictly. All the factories are operating under capacity which doesn’t help the organization in achieving its goals. One way to keep the costs in control in my opinion would be to assign specific tasks to specific factories so that they can operate efficiently rather than dedicating a whole factory to a product line. As the three reduces have somewhat similar manufacturing procedures.

Profit maximization has always been considered the primary goal of firms.The firm’s owner is the manager of the firm, and thus, the firm’s owner-manager is assumed to maximize the firm’s short-term profits (current profits and profits in the near future). Today, even when the profit maximizing assumption is maintained, the notion of profits has been broadened to take into account uncertainty faced by the firm (in realizing profits) and the time value of money. In this more complete model, the goal of maximizing short-term profits is replaced by goal of maximizing long-term profits, the present value of expected profits, of the business firm. The expected profit in any one period can itself be considered as the difference between the total revenue and the total cost in that period.

A firm maximizes profits, in general, when its marginal revenue equals marginal cost. If the firm produces beyond this point of equality between the marginal revenue and marginal cost, the marginal cost will be higher than the marginal revenue. In other words, the addition to total production beyond the point where marginal revenue equals marginal cost, leads to lower, not higher, profits. While every firm’s primary motive is to maximize profits, its output decision (consistent with the profit maximizing objective), depends on the structure of the market it is operating under.

As mentioned earlier, firms’ profit maximizing output decisions take into account the market structure under which they are operating. There are four kinds of market organizations: perfect competition, monopolistic competition, oligopoly, and monopoly.

Perfect Competition

Perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. For a market structure to be deemed “Perfectly Competitive”, it needs to have the following characteristics:

1) Many Buyers and sellers, but none of which are large enough to influence the price of a product in the market.

2) Each firm produces a homogeneous product; that is the products are indistinguishable from the other firm’s product in the same market.

3) Firms have little or no restrictions towards entering or exiting the market, thus increasing competition

4) Buyers and sellers have all the necessary information to run a business effectively, such as product prices, quality, source of supply etc.

A firm that is perfectly competitive is also known as a price taker, which means that the seller does not the ability to control the price of a product it sells but are rather determined by the market.

Perfect Competition in the Short-Run In perfect competition, a firm’s demand curve perfectly elastic or horizontal.

In the short run, it possible for a firm to make a profit. This is because the Average Revenue which is denoted by P is higher than the point C which denotes the Average Cost.

Perfect Competition in the Long-Run

In the long run, Marginal Cost (MC) =Marginal Revenue (MR). So the firms cannot achieve profit. One of the reasons is because other investors see the opportunity to earn profit by investing, so the market share and profit of the older firms falls as the demand curve shifts downwards. When MR=MC, a firm does not have a profit nor incur a loss.

Monopolistic competition Monopolistic competition is imperfect competition where many competing producers sell products that are differentiated from one another. Examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. Monopolistically competitive markets have the following characteristics: * There are many producers and many consumers in the market, and no business has total control over the market price. * Consumers perceive that there are non-price differences among the competitors’ products. * There are few barriers to entry and exit. * Producers have a degree of control over price.

Short-run equilibrium of the firm under monopolistic competition. The firm maximizes its profits and produces a quantity where the firm’s marginal revenue (MR) is equal to its marginal cost (MC). The firm is able to collect a price based on the average revenue (AR) curve. The difference between the firms average revenue and average cost, multiplied by the quantity sold (Qs), gives the total profit.

Long-run equilibrium of the firm under monopolistic competition. The firm still produces where marginal cost and marginal revenue are equal; however, the demand curve (and AR) has shifted as other firms entered the market and increased competition. The firm no longer sells its goods above average cost and can no longer claim an economic profit.

Oligopoly In an oligopolistic competition only a few competitors (three, four or five) exist since it is often difficult to enter such markets due to 1 the lack availability of required raw materials 2 the restriction to access the needed technology 3 shortages of funds 4 the firms simply got patent rights Examples of oligopolies may include the markets for petrol in the UK (BP, Shell and a few other firms) and soft drinks (such as Coke, Pepsi, and Cadbury-Schweppes), the “Big Three” in the U.S. aluminum industry and companies such as Nokia or Motorola in the cell phone industry, as well as companies in the video game console market. Read also which helps enable an oligopoly to form within a market?

In an oligopoly it is generally assumed that the four largest firms in the market occupy greater than 40% of the market share. Naturally in such markets price changes do not occur often. The firms are interdependent on each other as slight increase in selling price of one firm will result in gains for other firms as the lost customers will switch to other firms. At the same time a slash in price will lead to other firms reducing their prices as well. Hence we may assume that in an oligopolistic market the firms practice economies of scale to begin with, that is they produce at maximum efficiency. Nonetheless these companies may also increase their selling prices on a mutual basis so as to churn out maximum amount of profits from the consumers.

An example could be from the following kinked demand graph:

Monopoly: Monopoly is the theory of market structure based on three assumptions: There is one seller, it sells a product for which no close substitutes exist, and there are extremely high barriers to entry. Local electricity companies provide an example of a monopolist.

There are many factors that give rise to a monopoly. Patents can give rise to a monopoly situation, as can ownership of critical raw materials (to produce a good) by a single firm. A monopoly, however, can also be legally created by a government agency when it sells a market franchise to sell a particular product or to provide a particular service. Often a monopoly so established is also regulated by the appropriate government agency. Finally, a monopoly may arise due to declining cost of production for a particular product. In such a case the average cost of production keeps falling and reaches a minimum at an output level that is sufficient to satisfy the entire market.

At any output level, the price charged by a monopolist is higher than the marginal revenue (MR). As a result, a monopolist also does not produce to the point where price equals marginal cost (MC). If marginal revenue is greater than marginal cost, as is the case for small quantities of output, then the firm can increase profit by increasing production. Extra production adds more to revenue than to cost, so profit increases. If marginal revenue is less than marginal cost, as is the case for large quantities of output, then the firm can increase profit by decreasing production. Reducing production reduces revenue less than it reduces cost, so profit increases.If marginal revenue is equal to marginal cost, then the firm cannot increase profit by producing more or less output. Profit is maximized.

Porter’s Five Forces is a framework for industry analysis and business strategy that was formed by a Harvard Business School affiliate, Michael E. Porter in 1979. This framework is used for identifying the five structural determinants of intensity of competition and of profitability of firms in oligopolistic industries.

This paper will discuss these Five Forces in detail and apply all relevant microeconomic concepts to explore the relationship between Porter’s framework and the oligopolistic industries and its effects on today’s market.

Michael Porter’s Strategic Framework Michael Porter’s five forces that make up his proposed strategic framework include the threat from substitute products, the threat of entry, the bargaining power of buyers, the bargaining power of suppliers, and lastly, the intensity of rivalry among existing competitors. Because Porter’s references are in reference to oligopolistic industries, we must first start out by defining exactly what an oligopoly is. The definition given in the text Managerial Economics in a Global Economy by Dominick Salvatore states that Oligopoly as the form of market organization in which there are few sellers of a homogeneous or differentiated product. It further states that Oligopoly is the most prevalent form of market organization in the manufacturing sector of industrial nations, including the United States.

The five forces of Porter’s strategic framework represent strategic challenges facing firm managers as they seek to maximize profits in oligopolistic markets. The firm will earn higher than average industry profits if it does not face much of a threat from substitute products and from the entry of potential competitors, if buyers and suppliers do not exert much market power of the firm, and if there is low intensity of rivalry and competition among existing firms. Economics has showed us that if an organization raises its prices, the demand for substitute products will increase. In an oligopoly, if much of the market is owned by the oligopoly institutions, then there will not be much competition and therefore is not a concern in this area. Additionally, the greater the differentiation and uniqueness of a product the firm sells and the greater the brand loyalty of consumers for the firm’s product, the higher is the markup that the firm can apply and the greater the profits of a firm.

According to Porter, New entrants to an industry bring new capacity to desire to gain market share, and often substantial resources. To deter this, Porter states that there are six major sources of barriers to entry which are Economies of scale, Product differentiation, Capital requirements, Cost disadvantages independent of size, Access to distribution channels, and government policy. The potential rival’s expectation about the reaction of existing competitor also will influence its decision on whether or not to enter the market.

The Long-run Efficiency Implications of an Oligopoly Cost curves may differ under various forms of market organization. You can make a few generalizations to be interpreted cautiously. To begin, the perfectly competitive firm and the monopolistically competitive firm break even in long-run equilibriums. Therefore, consumers get the commodity at cost of production. However, the monopolist and the oligopolist can and usually do make profits in the long run. These profits may lead to more research and development and to faster technological progress and a rising standard of living in the long run.

A perfectly competitive firm in long-run equilibrium produces the output at which P=MC, the imperfectly competitive firm produces the output at which P exceeds MC. Therefore there is an under allocation of resources in these imperfectly competitive industries and a misallocation of resources in the economy. Meaning under any form of imperfect competition, the firm is likely to produce less and charge a higher price than in perfect competition. This difference is greater in pure monopoly and oligopoly than in monopolistic competition because of the greater elasticity of demand in monopolistic competition.

While the perfectly competitive firm produces at the lowest point on its LAC curve in long run equilibrium, the monopolistic and the oligopolistic are very unlikely to do so, and the monopolistic competitor never does. However, the size of the efficient operation is often so large in relation to the market that only a few firms are required in the industry. Perfect competition under such circumstances would either be impossible or lead to unaffordable high costs. Lastly, the waste resulting from excessive sales promotion is probably going to be zero in perfect competition, and larger in oligopoly competition.

Advantage and Disadvantage of the Oligopoly Market Structure

Some disadvantages of the Oligopoly market structure are as in monopoly, price usually exceeds LAC so that profits in oligopolistic markets can persist in the long run because of restricted entry, oligopolists usually do not produce at the lowest point on their LAC curve as perfectly competitive firms do, because the demand curves facing oligopolists are negatively sloped, P>LMC at the best level of output (except by the followers in a price leadership model by the dominant firm) and so there is an underallocation of the economy’s resource to the firms in an oligopolistic industry, and when oligopolists produce a differentiated product, too much may be spent on advertising and model changes. Some advantages of an oligopoly is that ologopolists spend a great deal of their profits on research and development, and many economists believe that this leads to much faster technological advance and higher standards of living than if the industry were organized along perfectly competitive lines. Also, advertising is useful because it informs consumers, and some product differentiation has economic value in satisfying different consumer’s tastes.

The Reason for the Rapid Spread of Global Oligopolists The formation of global oligopolies has accelerated as the world’s largest corporations have been getting bigger and bigger through internal growth and mergers according to Salvatore. Corporations are no longer satisfied with their status in the market place if they are not the leading organization in their industry or sector. The reason for the rapid spread of global oligopolists is simple, it’s because nobody wants to be left behind in a market that consistently evolving in areas of technology and globalization.

Summary In conclusion, this paper touched on several operating and marketing strategies of an oligopoly and Porter’s strategic framework. We’ve learned oligopolists generally spend too much on advertising and model changes. However, economies of scale make large-scale production and oligopoly inevitable in many industries and may even lead to more technological change than alternative forms of market organization. According to Salvatore, the sales maximization model postulates that oligopolistic firms seek to maximize sales after they have earned a satisfactory rate of profit to satisfy stockholders.

English Deutsch Erklarung UNIT 18 Beispiele Market leader Marktfuhrer someone or something that is winning during a race or other situation where people are competing A company’s sales expressed as a percentage of the total market Short-term tactics designed to stimulate stronger sales of a product The situation in which there is only one seller of a product; a market in a particular product in which a single producer can fix an artificial price.

Companies offering similar goods or services to the same set of customers A short and easily memorized phrase used in advertising The division of a market into submarkets according to the needs or buying habits of different groups of potential customers A small and specific market segment; an area or position which is exactly suitable for a small group of the same type Microsoft is a world leader in software design. Market share Marktanteil Promotion, Warenangebot Monopol, Monopolstellung The company has increased its market share. Promotion

There was a promotion in the supermarket and they were giving away free glasses of wine. The government is determined to protect its tobacco monopoly. Monopoly Competitors Konkurrenten Werbespruch, Motto, Slogan Marktsegmentierung, Marktunterteilung Nische Their prices are better than any of their competitors. an advertising slogan Slogan Market segmentation City Insurance segmented the market into three by issuing three types of policy. Niche an ecological niche. 1 Differential advantage Turnover Differentialvorteil, -vorzug Umsatz Rezession Perfekter Wettbewerb

A factor which makes you superior to competitors in a certain respect A business’s total sales revenue A period during which an economy is working below its potential When products are homogeneous, and there are a great many firms too small to have any influence on the market price, and firms can easily enter and exit the industry Situation in which there is only one buyer Industry in which the efficient existence of more than one producer is impossible; examples include public utilities such as water, gas and electricity, where it would be inefficient to have several competing companies laying their own networks of pipes or cables.

When many producers of slightly differentiated products are able to sell them at well above their marginal costs. A concentrated market dominated by a few large suppliers. This is very frequent in manufacturing because of economies of scale and the cost barriers of entering and industry Factors which cause the average cost of producing something to fall as output increases. Large supermarkets have high turnovers (= their goods sell very quickly). The country is sliding into the depths of (a) recession. The two companies are in competition with each other. Recession Perfect competition Monopsony Natural monopoly

Monopson Naturliches Monopol Monopolistic competition Monopolistischer Wettbewerb Oligopoly Oligopol Economies of scale Massenproduktionsvorteile 2 Barriers to entry Zugangsbeschrankungen Economic or technical factors that make it difficult or impossible for firms to enter a market or compete with existing suppliers. One in which a market leader can indicate its preferred price to smaller competitors. Dominant-firm oligopoly Cartel Kartell Group of producers or sellers who fix prices and quantities in order to avoid competition and increase profits. This is illegal in many countries, most notably the USA an oil cartel 3 UNIT 19

Innovation Innovation, Neuerung Streuen, aufteilen Fusionieren, verschmelzen, Uberfall, Angriff Designing new products and bringing then to the market To expand into new fields To unite, combine, amalgamate, integrate or join together Buying another company’s shares on the stock exchange, hoping to persuade enough other shareholders to sell to take control of the company A public offer to a company’s shareholders to buy their shares, at a particular price during a particular period, so as to acquire a company To merge with or take over other firms producing the same type of goods or services Joining with firms in other stages of the production or sale of a product A merger with or the acquisition of one’s suppliers A merger with or the acquisition of one’s marketing outlets Combined production that is greater than the sum of the separate parts Team work at its best results in a synergy that can be very productive. The company made a takeover bid for a rival firm. the latest innovations in computer technology To diversify Many wheat farmers have begun to diversify into other forms of agriculture.

They decided to merge the two companies into one. To merge A raid Takeover bid Ubernahmeangebot Horizontal Horizontal, waagrecht Vertikal, senkrecht Rucklaufig, ruckwarts gerichtet Vorwarts, voraus Synergie Draw a horizontal line across the bottom of the page. vertical lines/stripes Vertical Backward Forward Synergy 4 UNIT 23 Printing money and destroying it Setting interest rates, ceilings & floors Commercial banking supervision Controlling the amount of banknotes in circulation Establishing maximum and minimum lending rates, thereby controlling the credit system Ensuring that banks have a sufficient liquidity ratio to allow customers to withdraw their deposits when they want

Intervening on foreign exchange markets, buying or selling large amounts of the national currency, to prevent major fluctuations Lending money to a commercial bank in danger of going bankrupt Selling government bonds to commercial banks or buying them back, in order to alter the amount of credit the banks can offer (and thereby alter the money supply) Einkommensteuer Direkte Steuer (nach oben) gestaffelte Steuer Indirekte Steuer Mehrwertsteuer, Umsatzsteuer The tax people pay on their wages and salaries A tax on wages and salaries or on company profits A tax levied at a higher rate on higher incomes A tax paid on property, sales transactions, imports, and so on A tax collected at each stage of production, excluding the already-taxed costs from previous Exchange rates supervision Act as a lender of los resort Open market operations Income tax Direct tax Progressive tax Indirect tax Value-added tax 5 tages Capital gains tax Kapitalertragssteuer Erbschafts- und Schenkungssteuer Reichensteuer, Vermogenssteuer Steuerhinterziehung (legale) Steuervermeidung Abschreibung Abhaltung, negativer Anreiz rucklaufig Konsum, Verbrauch, Verzerr selbststandig Staatliche Sozialversicherung Leistungsanreiz, Vorteil Profits made by selling assets are generally liable to Gifts and inheritances over a certain value are often liable to The annual tax imposed on people’s fortunes (in some countries) Making false declarations to the tax authorities Reducing the amount of tax you pay to a legal minimum Reducing the value of a fixed asset, by charging it against profits Something which discourages an action An adjective describing a tax that is proportionally higher for people with less money Spending money to uy things, rather than saving it; Spending on goods and services Working for yourself, being your own boss A tax on incomes that pays for sickness benefit, unemployment benefit, and old-age pensions Non-financial benefits or advantages of a job A way to delay the payment of tax to a later time Steuerlich absetzbar Describes expenditures that can be taken away Capital transfer tax Wealth tax Tax evasion Tax avoidance Depreciation Disincentive Regressive Consumption Self-employed National insurance Perks Tax shelters Tax-deductible 6 from taxable income or profits Tax havens Steueroasen A country offering very low tax rates to foreign businesses 7 UNIT 25

Expectations Mortgage Erwartungen, Aussichten Hypothek, Verpfanden Mieten, Pacht Output, Leistung Investition, Anlage Industrielle Jemanden entlassen, feuern demografisch Einschrankung Annahmen Ware, Handelsware Ausgleich, Gleichgewicht Beliefs about what will happen in the future Money borrowed in order to buy a house or flat or apartment Money paid for the use of a house or flat owned by somebody else The amount of something produced by a company, a country, and so on Spending on new machines, factories, and so on Owners or managers of manufacturing companies To dismiss employees Concerning the number of births, deaths, population movements, and so on An absence of luxury and comfort something that you accept as true without question or proof a substance or product that can be traded, bought or sold a state of balance People tend to make assumptions about you when you have a disability. The country’s most valuable commodities include tin and diamonds.

The disease destroys much of the inner-ear, disturbing the animal’s equilibrium. Rent (Country’s) output Investment Industrialists Lay off Demographic Austerity Assumptions Commodity Equilibrium 8 Exchange Tauschen exogen Information Ressourcen, Mittel when you give something to someone and they give you something else They were given food and shelter in exchange for work. Exogenous Information facts about a situation, person, event, etc a useful or valuable possession or quality of a country, organization or person I read an interesting bit/piece of information in the newspaper. The country’s greatest resource is the dedication of its workers. Resources 9 UNIT 27

Visible trade Invisible imports and exports Barter or countertrade Balance of trade Warenverkehr, sichtbarer Handel Inlandische Dienstleistung an Auslander, unsichtbarer Handel Tauschhandel Handelsbilanz Zahlungsbilanz Trade in goods Trade in services (banking, insurance, tourism, and so on) Direct exchanges of goods, without the use of money The difference between what a country receives and pays for its exports and imports of goods The difference between a country’s total earnings from exports and its total expenditure on imports The (impossible) situation in which a country is completely self-sufficient and has no foreign trade A positive balance of trade or payments A negative balance of trade or payments Selling goods abroad at (or below) cost price Imposing trade barriers in order to restrict imports Taxes charged on imports Quantitative limits on the import of particular products or commodities Balance of payments Autarky Autarkie, wirtschaftliche Unabhangigkeit Uberschuss, Mehrbetrag Defizit, Verlust, Mangel Preisunterbietung Protektionismus, Schutzzollpolitik Tarife, Zolle Quoten Surplus Deficit Dumping Protectionism Tariffs Quotas 10 Infant industries

Kleinkinderbranchen UNIT 29 Market opportunity Marktchance Menschen mit hohem Eigenkapital risikoscheu Borsennotiert, notiert Gebuhr, Entgelt, Honorar Eigenkapital Laufende Kosten, variable Kosten Marktdurchdringung Aufsichtsratsmitglied The possibility of providing a new product or service to satisfy particular needs People with a lot of money at their disposal Describes investors who do not want to take risks with their money Describes companies whose shares are traded on the stock exchange Money paid to professional people for a job of work done Another word for stocks or shares: a company’s own capital The day-to-day expenses of operating a business.

The attempt to increase or maximize sales, and get a large number of customers Directors who do not work full time for a company, but advise it about strategic issues Individual consumers, households, companies, organizations, etc. Vorausschau Seeing what will happen in the future To do what you prefer to do, at the lowest High net worth individuals Risk averse Listed Fee Equity Running costs Market penetration Non-executive directors Economic agents Foresight To maximize utility 11 possible cost Expectations Erwartungen, Aussichten Existenzgrunder Wachsamkeit, Aufmerksamkeit Unwissenheit Bewusstsein What people think or anticipate will happen in the future A person who starts a business Being quick to see, understand or act in new situations Not knowing about something Knowing or being conscious of something Entrepreneur Alertness Ignorance Awareness 12