Competition and markets Essay Example | Topics and Well Written Essays - 500 words - 1

Competition and markets - Essay Example Oligopolistic firms are interdependent and large. One firm is hugely affected by the deed of the other. Some of the characteristics of oligopoly are small number of large firms that generate substantial market control depending on the size of the businesses. Second characteristic of the oligopoly market is interdependence in decision-making process because the number of competition is few and any slight change in price or good eventually affects other firms (Nechyba, 2011). Firms in oligopoly regard the response of other firms in an industry. Thirdly, firms in an oligopolistic market normally use aggressive advertising, marketing, and promotion in order to fight for its place in the market. Advertisement and sales costs the oligopolistic firms a lot of money. Companies tend to carry out their own product’s promotion and the firm’s name to attract a significant number of customers (Landsburg, 2011). Franchise in oligopoly market applies a small element of differentiation, which creates distinction between its own product and other competitors’ products as it aims at increasing its market share in the industry. Additionally, there is no price reduction in the oligopolistic market since prices are sticky and rigid for the reason that any price cut by one firm may eventually call for reaction by the rival firms, which may affect the whole industry (Landsburg, 2011). Some of the competitors of the oligopolistic firms such as the franchise are the large few companies operating in the same markets. The availability and formation of cartels may threaten franchise and lead to closure of the business. Firms may further use tacit collusion by fixing the prices without all firms’ consent and when quantity produced and price fixing is done explicitly. Price leadership may largely affect the prices of the franchise especially when one major firm in the industry decides to set price lower than the prevailing market price