Economic Industry

Economic Industry

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Economic Industry

Question One

Oligopoly is a circumstance where a market or industry is controlled by numerous divisions in the form of firms. According to Puu and Irina (2006), many industries today make use of the concept of oligopoly, for example, television manufacturers. The main characteristic of the television industry is that, it is controlled by other companies, for example, Sony, Samsung, LG and others. The Sony Entertainment company is among the largest television-producing firms, which gives it significant control of the market. This makes it an oligopolistic company because other firms in the industry do not have a large market share. Another characteristic is the production of similar goods by different companies. This characteristic is subdivided into identical or differentiable product oligopoly. Identical oligopoly involves the production of raw materials used by the parent industry for processing televisions. However, differentiable oligopoly is the production of the final good for customer consumption. Another characteristic is the entry barriers involved in controlling the market. Stroux (2004, p. 186) suggests that some of these barriers include, expensive costs in starting the company and laws against copyright. These barriers protect existing oligopolistic companies from losing their market share.

Question Two

In economics, game theory is a concept used to describe the profits of an oligopolistic company, by relating them to the losses of another. Nash equilibrium is the derivation of a concept used in a game where competing companies formulate their own rules of playing. Optimum equilibrium is the utilization of various theories of economics to evaluate the internal and external effects of an industry in the market.

Most companies in an oligopoly do not use the prices of their products to compete for various reasons. The main reason is the reduction of profit margins with a change in price. This occurs because an increase in the price of goods reduces the demand by consumers. This reduces Sony’s market share while increasing that of other competing companies. Customers opt for the same product at a cheaper price. Reducing the prices of goods in order to draw customers to the company also brings losses. This is because the company will struggle to compensate for costs encountered during production.

Question Three

The non-price competition strategy of Sony Entertainment is effective because it has exposed the company’s products to the market. This has been done through saving funds gained from the strategy to advertise and develop products. Advertisement has created awareness of the company to consumers, and as a result, the sales of products have increased significantly. The enhancement of products through developing the mechanisms used to operate the televisions, and the addition of extra features that improve the clarity and sound quality of the televisions, has drawn consumers to the products. This has also contributed to the market rise. Other companies like Samsung have also made significant improvements, and this has increased the level of competition in the television industry.

References

Puu, T & Irina, S 2006, Business cycle dynamics: models and tools, Springer, Berlin.

Stroux, S 2004, US and EC oligopoly control, Kluwer Law International, Hague.