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Tutor2u A2 / Advanced Higher Economics Course Companion
53
7
7.1
Oligopoly
Introduction
An oligopoly is defined as a market dominated by a few producers: each of which has some control over the market. Examples of oligopolies include: • Petrol retailing and production • Washing powder market • Main UK commercial banks • Package travel industry • Landline and Mobile Telecommunications • Electricity generation • Electrical retailing • Bus Industry
7.2
Measuring the Degree of Market Concentration
The concentration ratio is one measure of the extent to which a market or industry is dominated by a few leading firms. Normally an oligopoly exists when the top five firms in the market account more than 60% of total market demand/sales for. In the example below we look at the market share of the leading hotel chains in the UK tourist sector in 2000. Hotel Operator Best Western Whitbread Compass Six Continents MacDonald Corus & Regal Choice Hilton Jarvis Accor Thistle Hotels Moat House % of Market (2000) 20.2 18.5 10.7 10.2 6.0 5.1 4.9 4.6 3.6 3.5 3.1 2.4
One industry that has come under increasing scrutiny in recent years is the market for electrical retailers – an industry that is now dominated by the Dixons Group which in 2000 had from its various retail brands a combined market share of 32.4%. This is shown in the table below: Dixons Group The Link Dixons Group 3.1 7.1
Tutor2u A2 / Advanced Higher Economics Course Companion
54
PC World Currys Dixons Group Total Other Retailers Comet Argos Powerhouse John Lewis Source: Verdict Research
8.8 12.8 31.8 10 5.3 4.3 3
There is no single theory of how firms determine price and output under conditions of oligopoly, but the industry is likely to exhibit the following features: • A few firms selling similar products • Each producing branded products • Significant entry barriers into the market in the long run • Firms have to take into account likely reactions of rivals to any change in...