2. At the end of the lessons, students should:
Understand the key characteristics of
oligopolistic market structures.
Understand the makeup of one industry and be
able to comment on the extent to which it
represents characteristics of an oligopolistic
market structure .
Be able to carry out effective research skills
using a range of resources .
3. Oligopoly is best defined by the market conduct
(behaviour) of firms
A market dominated by a few large firms I.e.
“Competition amongst the few”
High level of market concentration
Concentration ratio is the market share of the
leading firms
Each firm tends to produce branded /
differentiated products
Key issue is
behaviour of a few!
4. Sets up Barriers to Entry
Aims to create long run supernormal profits
Mutual interdependence between competing firms
(important)
Intensive non-price competition is common
Periodic aggressive price wars
Exploitation of economies of scale
5. Petrol Retailing
National Food Retailers
Hotel Industry
DIY Retail Sector
Electrical Retailing
Package Holiday Companies
Leading Commercial Banks
Telecommunications Industry
Pharmaceutical companies
Soft drinks manufacturers
Low cost airlines
Computer games console
manufacturers Orange competes in an oligopoly –
there is intense price and non-price
competition for customers
Each of you are to
take one of these
business areas and
see if you can name
the top 5 companies!
6. Groceries - dominated in the UK by Asda/Wal Mart, Tesco, Sainsbury and
Safeway/Morrisons
Chemicals/oils - wide definition of the term chemical but key players are Shell, Exxon,
GlaxoSmith Klein, ICI, Kodak, Astra-Zeneca, BP, DuPont, BASF and Bayer
Brewers - Interbrew, Scottish and Newcastle, Guinness, and Carlsberg Tetley have a
four firm concentration ratio of 85%!
Fast food outlets - McDonalds, Burger King, KFC
Bookstores - Amazon, Barnes & Noble, Borders, Blackwells, Waterstones
Detergents - Unilever and Proctor and Gamble
Music retailing - HMV, Tesco, I Tunes, Tower, Amazon, MVC
Banks - NatWest, Barclays, HSBC, Lloyds TSB
Entertainment - Time-Warner, BMG,
Electrical retail - Dixons, Currys, Comet
Electrical goods - Sony, Hitachi, Panasonic, Canon, Bush, Fuji
Mobile phone networks - O2, Vodafone, Orange, T-Mobile
Home DIY - B&Q, Focus, Homebase
7. An oligopoly is an industry where there is a high
level of market concentration.
The concentration ratio measures the extent to
which a market or industry is dominated by a few
leading firms.
8. UK grocery market share 2008
0
5
10
15
20
25
30
35
Tesco
Asda
Sainsbury'sM
orrisons
C
o-op
Som
erfieldW
aitrose
Aldi
Independents
LidlIceland
O
thers
N
etto
Farm
foods
Tesco 30.9
Asda 17.1
Sainsbury's 15.9
Morrisons 11.4
Co-op 4.2
Somerfield 3.9
Waitrose 3.8
Aldi 3
Independents 2.5
Lidl 2.3
Iceland 1.7
Others 1.7
Netto 0.8
Farmfoods 0.5
What’s the
concentration ratio of
top 3?
Or the top 4?
Top 3 = 63.9% Top 5 = 79.5%
9. Market Share in the United Kingdom Hotel Sector
Best Western 20.2
Whitbread 18.5
Compass 10.7
Six Continents 10.2
MacDonald 6
Corus & Regal 5.1
Choice 4.9
Hilton 4.6
Jarvis 3.6
Accor 3.5
Thistle Hotels 3.1
Moat House 2.4
3 firm concentration ratio
= 49.4%
5 firm concentration ratio
= 65.6%
What’s the
concentration ratio of
top 3?
Or the top 5?
10. Firm Market Share %
News International Ltd 36.3
Associated Newspapers Ltd 21.7
Trinity Mirror plc 13.8
Express Newspapers Ltd 13.5
Telegraph Group Ltd 8.4
Guardian Newspapers Ltd 3.1
Independent Newspapers (UK) Ltd 1.9
Financial Times Ltd 1.4
What’s the
concentration ratio of
top 3?
Or the top 5?
Top 3 =
71.8 %
Top 5
93.7%
11. You need to think back to arguments against monopolies.
12. 0% 20% 40% 60% 80% 100%
Sugar
Tobacco products
Oils and fats
Gas distribution
Confectionary
Man-made fibres
Coal extraction
Weapons and ammunition
Soft drinks and mineral w aters
Pesticides
Sugar 99%
Tobacco products 99%
Oils and fats 88%
Gas distribution 82%
Confectionary 81%
Man-made fibres 79%
Coal extraction 79%
Weapons and ammunition 77%
Soft drinks and mineral
waters 75%
Pesticides 75%
13. Market forms can often be classified by their concentration ratio. Listed, in
ascending firm size, they are:
Perfect competition, with a very low
concentration ratio.
Monopolistic competition, below 60% for the
five-firm measurement.
16. On line shopping
Supermarket store website
Opening hours
brand / product range
Non food products
17.
18.
19.
20.
21.
22.
23. Non price competition
Price rigidity
Collusion
Price Wars (occasional)
Can you remember some
industries that are ‘oligopolistic’?
Petrol
Hotel
DIY
Electrical Retailing
Package Holidays
Banks
Phone
Soft drinks
24. Despite changes in costs of production,
oligopoly prices appear to remain at a
constant level
Consider petrol prices…. Very rarely different
within a geographical area… collusion or
market forces?
25.
26. Oligopolies do compete against each other -
known as non –collusive behaviour.
However, there is an incentive to collude.
Formal collusion - is where firms set up an
agreement between each other – they create
a cartel!
28. This is not illegal
It is where competitive firms monitor each
other’s behaviour closely and refrain from
competing on price.
This is often seen as price leadership where
competitors follow the dominant firm’s lead.
29. Where a few firms dominate they could set
an agreement on price, quantities for supply,
service standards etc
The collusion restricts output
The collusion raises prices
The collusion raises abnormal profits
30. The Organisation of the Petroleum Exporting Countries (OPEC) is a permanent
intergovernmental organisation, currently consisting of 12 oil producing and
exporting countries, spread across three continents America, Asia and Africa.
The members are Algeria, Angola, Ecuador, the Islamic Republic of Iran, Iraq,
Kuwait, the Socialist People’s Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi
Arabia, United Arab Emirates & Venezuela.
The organisation’s principal objectives are:
1. To co-ordinate and unify the petroleum policies of the Member Countries and
to determine the best means for safeguarding their individual and collective
interests;
2. To seek ways and means of ensuring the stabilisation of prices in international
oil markets, with a view to eliminating harmful and unnecessary fluctuations; and
3. To provide an efficient economic and regular supply of petroleum to consuming
nations and a fair return on capital to those investing in the petroleum industry.
31. Typically, cartel members may agree on:
prices
output levels
discounts
credit terms
which customers they will supply
which areas they will supply
who should win a contract (bid rigging).
Confess your cartel:
Individuals can be sent to prison
for up to five years and businesses
can be fined up to 10 per cent of
worldwide turnover.