Oligopoly Essay Example | Topics and Well Written Essays - 2000 words

Oligopoly - Essay ExampleIn relation to be it shows that in an oligopolistic merchandise firms lead not raise their legal injurys because even a small price enlarge give cause them to lose many customers and at the same time a large price decrease by the owners will gain only a few customers because such an action will begin a price war with other firms. The curve is therefore more price-elastic for price accessions and less(prenominal) so for price decreases. In a kinky demand curve as in an oligopoly peripheral costs could change without necessarily changing the price or quantity.Being an Oligopoly the EU rail simple machine market will be experiencing an fair cost curve that will represent benefits from substantial economies of size. These firms have truly become large and powerful and with the increased output they have low processing and operating costs. The EU car industry clearly has just a few ruling firms in the industry which will be watching each others pricing and output strategies very closely. Moreover it should be noted that the EU car industry might actually be benefiting through its oligopolist structure(although the practice of price discrimination cannot be applauded).The car industry has to maintain its factories and pay its workers regardless of the amount of output /cars it produces every year. They can likely not afford a perfect tilt situation where there would be price competitions and losses which would have an adverse effect on the safety and quality of the cars.This diagram shows that the car industry being a technically differentiated oligopoly(different types of cars) produces at a profit maximizing take of output where fringy cost equals marginal revenue. The firm finds the price it will charge customers at the profit maximizing level of output (Qm) from the demand curve, and sets price to Pm. As we can see, the firm is earning economic profits since price exceeds the average costs at the profit maximising level o f output.Now coming back to the issue the heading addresses , it is a fact that for many years there is large scale price discrimination in the European Car Market. For example figures show that in 2001the pre-tax price of a Mazda 323 was 10,525 in the UK ,7,404 in Greece and 6,266 in Denmark ( European Commission, July 2001. )This has largely been blamed upon the fact that the European Car Industry is exempt from European competition law. .This situation has allegedly led to a rather oligopolistic arrangement by the persons involved in the car industry as they operate a rigid network of national or regional dealers which atomic number 18 chosen by car manufacturers, to flourish. Allegedly this is also where British car buyers have been particularly discriminated against. The European Car market is not a freely competitive market. As an oligopoly then the EU car industry experiences downward sloping long run average cost curve.The tactic that this industry uses is to increase prof its by expanding output and/or merging to take advantage of economies of scale. As a moment the