Write a 23 page paper addressing the following 1Describe the

Write a 2-3 page paper addressing the following: 1.Describe the general characteristics of oligopolies. 2.Describe the economic characteristics unique to the airlines.

Solution

1.

Oligopoly refers to the market structure where only a handful of firms (sellers) dominate the market comprising of many buyers. Since the number of sellers is limited, the degree of concentration in such economies is high.

With market power in the hands of the sellers, they are the price setters and the consumers are the price takers.

Since only a handful of firms dominate the market, the scope for game playing and strategic planning is very high. Firms engage in all sorts of competition, ranging from price leadership to quantity leadership.

The types of games played by these firms can be mentioned as below:

1. Stackelberg model: Firms move and operate sequentially or parallely

2. Cournot model: Firms chose quantity first

3. Bertrand model: Firms set price first

4. Collusion: In cases of unstable markets, firms try to collude and act as a joint and powerful force

These firms operate purely on the purpose of profits and often sell either identical products like steel or differentiated products like airplanes. The broader market is generally the same. Since the firms are few, they are highly interdependent on each other and actions of one affects the actions of another.

2.

The airlines market is very similar to the oligopolistic market structure. There are a limited number of big players selling similar products, who set almost similar strategies to attract more and more customers. The price range is almost similar and is mostly on the higher side. They operate privately and keep a keen watch on their competitors.