Executive Summary

The report is prepared to explain how oligopolistic market model is the best model to relate to the current increase in the price of Oil. The Oil petroleum Organization is analyzed deeply which clearly depicts the oligopoly style of marketing by the members of OPEC. It has also examined by lot of research and based on recent reports that the OPEC tries to influence the oil prices by controlling the supply of oil production with the consent of all the members and tries to fix the oil prices in order to gain heavy profits. OPEC works on the same rule as followed by oligopoly market structure and hence clearly indicates its relation to each other and is best example of oligopoly market style.

1.0 Introduction

The Oligopoly market structure is the market which has few producers and large number of buyers which gives these producers an advantage to control the market. According to (Scholasticus, 2010), the buyers have very less alternatives and do not have enough knowledge about the market. The producers inflate the prices of their goods to attract more customers by reducing prices leading to deflated price level.Â

Based on Scholastics writing in one of its articles, the producers have perfect knowledge of the consumers but consumers do not have any information about the producers or their act of influencing the prices has a negative effect on national economy.

2.0 Discussion

2.1 Features of Oligopoly Market

There are few producers and large number of buyers.

The producers deal in differentiated products. (Jayasuriya, 2011, p. 87)

One of the producer or firm become the leader of the group and makes others to agree or dominates them to fix the prices which results in price leadership.

The competition in an Oligopoly market is intense and both price and non-price methods are used to attract more customers. For example in lot of advertisements, producers mention ”We will not be beaten on price. The price will be matched with the competitor selling price” (Labs S. S.)

In Oligopoly market, firms or producers get together to share a market and decide on prices. Because of an uncompetitive market structure, they enjoy heavy profit by raising the prices or lowering the prices to attract more customers resulting in entry barriers to this market. (Labs S. S.)

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According to recent study by Stanley St Labs., the competition is very different in oligopoly as compared to other markets forms. In other markets, it is violent because of the high competition to gain the market share but in oligopoly, the firms are interested to gain the market share by collaborating to earn heavy profits.

Firms are mutually interdependent which means if one firm changes its prices, it will affect the sales of other firms.

2.2 Kinked Style Demand Curve

According to (Stewart & Rankin, 2008, p. 141), the oligopoly market structures have kinked demand curves and the demand curve for the product has two sections called inelastic and elastic section.

demand curve.png

Kinked Demand Curve

The elasticity of demand depends on the amendments of rival companies price or service output.

The assumption made here is that the all the companies would want a considerable market share along with heavy profits:

There is no increase of price by one particular firm. This is elastic demand. There would be an adverse impact on the total revenue of the company.