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The Application of the Oligopoly Concept in the Real World

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Oligopolies are prevalent throughout the world and appear to be increasing ever so rapidly. Unlike a monopoly, where one corporation dominates a certain market, an oligopoly consists of a select few companies having significant influence over an industry

Oligopolies are noticeable in a multitude of markets. While these companies are considered competitors within the specific market, they tend to cooperate with each other to benefit as a whole, which can lead to higher prices for consumers.

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Teleshopping networks always come with a promise to provide customers with innovative and ‘miraculous’ products such and disease curing teas, unique household and kitchen solutions, exercise equipment and much more. These exclusive products that are sold on television today through teleshopping have always fascinated me

The concept of teleshopping in India was established somewhere through the mid-1990’s and it has transformed ever since. In the beginning when there only existed three players in the market – Asian Sky Shop, Telebrands and TSN; but since then the market has grown and so has the number of firms. As I’ve noticed, recently, many entrants in the market have flooded the Indian teleshopping industry. The reasons for this are many including changes in the purchasing power of the population, increased consumer awareness, and change in family structure & lifestyle. However, how successful these entrants are in the market is extremely exploratory? And this extended essay is an opportunity to do that. The very nature of the industry that it is dominated by media and marketing maneuvers makes it difficult for small firms to survive in this viable market. Currently players like Home Shop 18, Asian Sky Shop, and Star CJ lead the market. Through this research paper, I would like to examine – “Is Asian Sky Shop in India functioning as an Oligopolistic market structure”? After gathering all the data, reviewing all the information collected and observations – I found out that only a few firms operated in the market, barriers to entry and exit existed, and concentration ratio -directed towards an oligopolistic market structure. However, to truly determine the nature of the market in which the teleshopping industry in Mumbai, it was of grave importance that it should be tested against each type of market structure. Reviewing these different market structures would help establish the true nature of the industry in which Asian Sky Shop operates without any room for disparity. This method would effectively either substantiate or eliminate the hypothesis leading me to a conclusion to this research paper and possible limitations.

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A war of prices is a common feature in oligopoly (Levine, 1981). In the American cellular market, Verizon Wireless and AT&T have been noted to be most fiercely involved in the price wars

They also have been in a position to extend the wars into that area of creativity and innovations just so as to woe the market to themselves. Both companies at the beginning of the year announced that they were in for a 30 dollar reduction of the unlimited voice calling packages. However collusion is also noted in these moves since the firms are interested in wooing subscribers to opt for data services that are charged higher. Even as the cellular firms are involved in the tug of war in terms of pricing and quality, the firms are very aware that profitability is vital. To this end then, the production and supply of their services is inclined in such a way that the marginal revenue is equal to the marginal cost. This in essence implies that the additional cost that Sprint incurs when introducing a new service is ideally equal to the additional revenue that would be realized per customer that it has.According to Bergin (2005) the oligopolistic market has witnessed immeasurable barriers to entry. Other mobile telephone companies that have tried to cut it in the American market have gone through very much struggle and difficulty yet most have not even been able to cut through.

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As shown above, oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag. They can either scratch each other to pieces or cuddle up and get comfortable with one another. If oligopolists compete hard, they may end up acting very much like perfect competitors, driving down costs and leading to zero profits for all. If oligopolists collude with each other, they may effectively act like a monopoly and succeed in pushing up prices and earning consistently high levels of profit.

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Bergin, J. (2005). Microeconomic theory: a concise course. New York: Oxford university press.

Levine, D. (1981). The enforcement of collusion in oligopoly. Massachusetts: Massachusetts Institute of Technology.

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