Q1. Explain the market structure in the case.
Ans1. In an oligopoly market structure, a small number of large firms control the majority of
the market, and each firm's decisions have a big influence on the overall market. In this
instance
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The existence of a select few significant businesses, including eBay, Indiatimes
Shopping, Tanishq, Bata, Next, and others, implies that a select few companies
control the majority of the market.
These companies control a substantial portion of the market, and their actions, such
as price policies and product offerings, can affect how rivals behave.
One firm's decision may have an impact on the others due to strategic interactions
between the firms, creating complicated competitive dynamics.
Q2. Draw the market equilibrium and mention its conditions.
Ans2. Due to the strategic interactions between competitors, finding a single, stable market
equilibrium in an oligopoly can be difficult. Typical equilibrium circumstances include:
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Price and Output: Businesses may compete on their prices, their outputs, or a
combination of both. When there is equilibrium, no company has a reason to alter its
pricing or output level in light of what its rivals are doing.
Firms in an oligopoly may occasionally conspire to set pricing and output jointly. This
may result in a stable equilibrium where businesses operate like monopolies and
work together to maximise earnings.
Game Theory: Game theory, which takes into account the strategic decisions made
by businesses, may also be used to analyse equilibrium. Different equilibria can be
reached through tactics like price leadership, tit-for-tat pricing, and price warfare.
Entry Barriers: Oligopolistic marketplaces frequently feature high entry barriers,
which can support the maintenance of stable market conditions.
Q3. Describe the reasons which makes the market so fiercely competitive.
Ans3. For a number of reasons, oligopolistic marketplaces can be extremely competitive.
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Few Dominant Players: The market is dominated by a few numbers of large
companies, which means that each company's decisions significantly affect the
market. As businesses compete for market share, competition may be fierce.
Price Leadership: In an oligopoly, businesses may practise price leadership, where
one sets the price and the others imitate it. Pricing adjustments by rival businesses
may follow a price change by a dominating corporation.
Product differentiation is a strategy used by businesses to acquire a competitive
advantage. In certain markets, innovation and product development can be very
active.
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Advertising and marketing: To attract customers' attention and allegiance,
oligopolistic businesses frequently use aggressive advertising and marketing
campaigns.
Firms engage in strategic behaviour in an effort to foresee and respond to the moves
of their rivals. A strong competition may result from this strategic interaction.
High entry barriers, such as financial requirements, established brand reputations,
and economies of scale, can deter new entrants and fuel fierce competition among
established businesses.
Q4. If a firm in this market structure wants to decide the pricing of the product, is it
possible? If yes in which situation?
Ans4. A company does have some control over pricing in an oligopoly, but its capacity to
unilaterally set prices is constrained. A number of variables, such as the firm's strategic
position and rival responses, have an impact on pricing decisions. When price control is
possible, for example:
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Price Leadership: In an oligopoly, if one company is identified as the price leader, it
can set prices, and others may decide to follow. Even in this situation, the leader's
price increases can cause reactions from other businesses.
Collusion: Businesses in an oligopoly have the power to jointly determine prices and
dominate the market if they conspire and behave as a cartel. With the cartel
members holding a monopoly-like amount of pricing power, this setup is similar to
one.
Firms can use strategic pricing depending on their analysis of how competitors will
respond. For instance, a business may drop prices in an effort to increase market
share, anticipating price reductions from competitors.
Non-Price Competition: To achieve a competitive advantage, oligopolistic enterprises
may also engage in non-price competition on variables including product quality,
innovation, and marketing.
In an oligopoly, price decisions typically take into account cost factors as well as the firm's
strategic posture and anticipated responses from rivals. In order to keep the market stable,
corporations frequently engage in price wars or price stabilisation agreements because
pricing decisions are typically interconnected.
Q5. Explain the major economic challenges faced by the industry.
Ans5. The market structure for the industry is an oligopoly, as it is in the case, and it faces
the following particular economic difficulties:
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Strategic Interdependence: Businesses must foresee and respond to the moves of
their rivals, creating unpredictability and increasing the complexity of their strategies.
Intense competition and price wars may develop from this.
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High entry barriers may prevent new businesses from entering the market, which
may stifle innovation and reduce consumer choice. Existing businesses may utilise
their clout to discourage potential competitors.
Consumer Choice: Because there is less competition and fewer companies
competing, prices may rise and the consumer's options may be limited.
Pricing decisions can be unpredictable, and businesses routinely change their rates in
response to what rival companies are doing. Both customers and businesses may
become uncertain as a result of this.
Issues with collusion and antitrust: Oligopolistic businesses may engage in collusion
or anticompetitive behaviour, which can be detrimental to consumer welfare and
give rise to legal issues.
Firms may make significant investments in product development and innovation to
acquire a competitive advantage. Consumers profit from this, while businesses may
incur higher costs as a result.
Market Concentration: Oligopolistic markets are typically competitive, with a small
number of dominant companies. Market dominance and potential misuse may result
from this concentration.
Consumer Welfare: It can be difficult to balance the interests of businesses and
consumers. To maintain fair competition and safeguard the interests of consumers,
regulators frequently keep an eye on oligopolistic marketplaces.
Oligopoly can promote innovation and competition, but it also has drawbacks relating to
market dominance, strategic behaviour, and possible antitrust issues. Regulators are
essential in maintaining the competitiveness and consumer benefits of these marketplaces.