Question

Module 6 Discussion The Discussion Board Forum should be considered as weekly short essay. In order to receive full credit, answer every question according to the instructions provided on DB rubric. You need to read the textbook and understand the concepts before you answer the questions. It is mandatory that you use proper economic language or concepts such as "demand", "supply", "elasticity", etc. on you posting. Additional research is required and strongly encouraged. Make sure to cite the source of your research using APA format and list it at the end of your posting. Using graphs and charts is strongly encouraged. The article The Oligopoly Problem argued that oligopolies fall through the cracks of these regulations and leave consumers unprotected from harmful business practices where industries are highly concentrated. Read the article and respond to the following in your initial post: • What are examples of firms in an oligopolistic market that abuse their power? Explain how they abuse their power and describe the impact on consumers. Do you agree with the author's feelings about increased government oversight of such industries? Why or why not? Displaying

Answer 1

Some of the oligopoly effects are discussed as follows:

i. Smaller output:

Means that oligopoly results in smaller output and high prices as compared to other market structures.

ii. Price is more than the average costs:

It implies that under oligopoly, there are restrictions on the entry of new organizations. Thus, organizations charge prices more than the average costs. Therefore, consumers have to pay more.

iii. Lower Efficiency:

it leads to non-optimum levels of output. Because the output produced under oligopoly depends on the market share held by the organization. Thus, the oligopoly firms fail to build the optimum scales of economies and achieve optimum output.

iv. Selling Costs:

A very essential part of an oligopoly. The oligopolists engage in high promotion tasks to take the share of its rivals. Thus, the resources are wasted in the form of high selling costs which do not add to the satisfaction of customers.

Apart from the aforementioned points, oligopoly shows poor performance from various other angles. It fails to satisfy customers since the price charged is very high, even more than average costs, thus affects economic welfare. In addition tot hat, sometimes oligopolists may face fluctuations in output as the output is not determined optimally. In perfect competition, when demand decreases, price falls. However, in the case of oligopoly, the price remains constant and output only changes. This is not beneficial for customers and society as a whole. Therefore, under oligopolistic market situations, the interference of government is necessary for regulating prices and keeping a tab on collusions, so that prices can be stabilized.

Yes, I appreciate the author's feeling of increasing government oversight because it enables the oligopolist to act as a monopolist and government can ensure the consumer welfare of the society.