Market Structure : Economic Models And Theories Essay

2031 Words Nov 27th, 2014 9 Pages
In the industry, there are many market structures which explains economic models and theories. A market structure portrays competitive relations among firms on either prices or output in an industry. An oligopoly is a market structure dominated by a small number of firms who produce the bulk of the industry’s output. These firms have a high concentration ratio of the given market and consequently have the power to collectively control both the supply and market price in the market. An oligopoly will tend to exhibit unique features which differentiates itself from other market structures which include: - A moderately high barrier for new entrants to prevent dilution of competition. - Product branding through advertising so producers have the option to differentiate their products. This is done to create brand loyalty. However the key feature of an oligopoly is the recognized degree of mutual interdependence between the firms. This nature of uncertainty within the oligopolistic model derives from its kinked demand curve. The kinked demand curve portrays the existence of high degree of interdependence among firms in the industry. It gives the assumption that a firm might face a dual demand curve for its good due to the reaction of other firms in the market following a change in quantity, price or any other variable. In other market structures such as perfect competition and monopoly, the rivals response when choosing output and price were not considered by the producers. The…

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