The term Oligopoly is derived from Grecian words oligoi, which means ‘few ‘ , and polien which means ‘to sell ‘ . So a market where there are merely a few Sellerss or manufacturers of a merchandise and each has considerable influence on the market is called Oligopoly market ( Rankin & A ; Stewart, 2008 ) . Cigarettes, Home Appliance, Airlines, Oil, Raw stuffs, are some of the illustrations of Oligopoly Market. Oligopoly is about same as monopoly, in which merely one house exerts control over most of the market. Because of little figure of houses involved, any action by an single house with regard to monetary value, end product or quality, have a noticable impact on the gross revenues of all other house.
When there are merely two houses, the market structurer is known as Duopoly. Intel and AMD in desktop computing machine microprocessor market, VISA and Mastercard in electronic payment market, Vodafone and Telecom in New zealand telecom market are few of the illustrations of Duopoly ( Putt, 2011 ) .
Oligopolists are more concern on inside industry competition than exterior. Each house keeps near oculus on other rivals, specially with Price. Any oligopolistic house will non increase or decrese the Price as it would destabalize their market portion and would give rise to Price war. To avoid this Price War and monopoly, Oligopolists form collusion like Price Leadership, where one house becomes monetary value leader ( one with big market portion ) , Cartel ( written aggrement ) like OPEC ( Organisationof Petroleum Exporting Countries ) .
Kinked Demand Curve
The Kinked Demand curve was developed by the economic expert Paul Sweezy. It explaind the double demand curve for the merchandise based on reaction of other house in the market to the Price alteration.
In the below graph demand and gross curve is drawn with Kink at the equilibrium. The common premise of the theory is that oligopolistic house tries to keep their market portion. Rival houses will non follow Price hiking above P1 by one house and therefore demand will go Elastic and due to lift in monetary value, gross will diminish for that house, but challengers will more likely to follow Price autumn by one house to avoid gross loss and hence demand becomes Inelastic and entire gross loss due to Price autumn. The Elastic and inelastic subdivisions of Revenue curve leads to a spread in the curve.
Below diagram illustartes, an addition in fringy costs will non inavitablily supply Price hiking, until the new MC curve ( MC2 ) cuts the MR curve at the same end product ( Riley, 2006 ) . This depicts that houses with different cost construction can besides suit into oligopolist manner and still maximize net income. Increase in cost of a single house will non change the monetary value of the merchandise, but if the Cost alteration is Industry broad so house will move in Parallel mode and will set monetary value. This is known as ‘conscious correspondence ‘ .
Merchandise distinction: Its fundamentally selling procedure which persuades that there is difference in merchandises by contrasting its alone qualities with the competition. Product distinction can be created by:
Ad: This is most common and most widely used procedure where simply by making brassy advertisement run, gross revenues can be promoted without even doing any alterations in the merchandise. Sometimes ad can make a negative position for viing merchandise like Coke vs Pepsi etc.
Particular packaging: Merely boxing the merchandise in a originative mode or every bit luxuriant as integrating new functionlity.
Sponsorship: By patronizing ar partnership with Movie production house or athleticss.
But merchandise differentation most frequently adds up to the cost of the merchandise.
Merchandise fluctuation: This actaully involves minor alterations in a merchandise in order to pull new purchasers. It could be augmented fluctuations as good. Such as available in different forms and colour or customization.
Rise in Oil station World war II
In 20th century crude oil gained increasing importance for industrial and commercial power every bit good as for transit, for railwaies and motor vehicles. US was the universe ‘s biggest consumer and manufacturer of Petroleum oil untill 1974 when Soviet Union took the lead.
The below image depicts oil monetary value rise and its cardinal factors post World War II.
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Post World War II U.S. demand for crude oil merchandises increased 12 % between 1945 and 1947 and crude Oil monetary value increased to 80 % as Peoples tend to purchase more and more motor Vehicles therefore resulted in Fuel oil deficits which lead to first recession in US 1948.
In 1952-1953, Korean struggle and Supply breaks due to universe boycott of Iran and US Oil refinery Strike, 30 % cut in fuel bringing for civilian flights and when the monetary value control lifted raise the Oil monetary value by 10 % .
Suez Crisis in 1956-57 due to barricading Canal and intrupting Oil transit and interrupting Iraq Petroleum company ‘s grapevine created deficit accounting to 10.1 % of entire universe output.This led to economic effects for Europe, as they rely in Middle East for most of its petroleum.Production outside Middle East was able to make full the spread as US increaded the export to third of a millon barrel a twenty-four hours. As the Production in Middle East get downing acquiring stable US export declined by 18 % over after.
By the terminal of 60 ‘s the Oil monetary value stared turning drastacly due to inflationary force per unit area, Strike by east seashore follwed by countrywide work stoppage of Oil, chemical and Atomic Union.Post colony raised the Oil monetary value by 7 % . But rupture of Trans-Arabian grapevine in Syria added 2nd leap by 8 % ( Hamilton, Feb 2011 ) .
So the Oil monetary value increased from $ 2.00/Barrel to about $ 4.00/Barrel while when viewed in 2008 dollars, petroleum oil monetary values fluctuating between $ 17 and $ 19 during most of the period. 20 % monetary value addition in nominal monetary values merely to maintain up with rising prices. Monetary values were stable near $ 3.00 per barrel from 1958 to 1970, but really rough oil monetary value declined from above $ 19 to $ 14 per barrel. The diminution in the monetary value of petroleum when adjusted for rising prices for the international manufacturer suffered the extra consequence in 1971 and 1972 of a weaker US dollar ( Williams, 2007 ) .
The Organization of the Petroleum Exporting Countries ( OPEC ) is a lasting, intergovernmental Organization, founded in 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.The chief map of OPEC is to modulate oil monetary value and production, with coordination among the member countries.The ultimate end of OPEC, as stated by the organisation, is to stabilise oil monetary values in their attempt to stabilise the geopolitical environment.Currently Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela are the members of OPEC ( OPEC, 2003 ) .
Jointly OPEC militias 75 % of planetary Oil reservers and provide 40 % of the universe ‘s oil. So the power to command Oil monetary value shifted to OPEC from US. In 1972 petroleum Oil was $ 3.00/barrel by the terminal of 1974 it increased to $ 12.00 by 1974 as Yom Kippur War started and Arab and Iran imposed trade stoppage on the states back uping Israel like US and other western universe.
During Iran and Iraq crisis in 1979, the production of the Oil decreased to 2 million barrels/day which led to agin addition in oil monetary value to more than double from $ 14 to $ 35 per barrel by 1981.
OPEC fails to command Price
OPEC has been widely criticized as it was unable to command and find the Production of Crude oil and its Price. OPEC states were seeking to raise the dollar monetary value of Oil to be just to the universe economic system. Ahmed Yamani, Saudi Arabia ‘s Oil curate warned OPEC in 1980 non to increase the monetary value as it would take to cut down in demand.
Billowing in rough oil monetary value forced consumer to happen substitutes hence demand reduced and Price autumn. Exploration and production outside OPEC increased and OPEC faced lower demand. Its control on monetary value decreased by find and development of Alaska, North Sea, Canada, Gulf of Mexico Oil modesty. OPEC tried to command the production by puting mark but failed.
Once once more in 1990 Oil monetary value spiked with Gulf War, booming of Asian Pacific part, diminution in Russian production and decrease in production by OPEC ( Hamilton, Feb 2011 ) .
But mostly OPEC combined the major oil production state and became the monetary value leader in the universe. They were non able to constantly command the Oil monetary value, but controlled it greatly, which id one of the feature of Oligopoly.
Petrol Price in NZ
New Zealand being little state ever been best topographic point to analyze the market response for new merchandise or engineering. It reflects typical international markets with monetary value motions
straight related to alterations in international monetary value markers. In New Zealand BP, Shell, Gull, Caltex and Mobil are few houses which rule the Petroleum Market. Shell and BP are the major participants in NZ with BP has larger market portion.
In 1998, Mobil, shell, Caltex and BP dropped their monetary value by 1c stating stating falling universe oil monetary values and non the menace of competition is responsible for the fall.But harmonizing to David Russel, Consumer Institute manager monetary value bead was a preparative measure for new competition as three companies Challenge, Gull and Liberty showed their involvement for NZ market. So in competition service improve and bead in monetary value forces exsisting competitiors to drop the monetary value too.Usually to come in and acquire hold in NZ oil market, the new rival houses may diminish the monetary value below Margin net income as Gull was making ( Gay, 2009 ) . BP is the virtually Price leader in NZ market ( Biddle, Why do BP ever increase gasoline monetary value foremost? , 2006 ) , but as NZ has policy of perfect competition and strick Torahs so Caltex, Mobil and Shell have failed to carry the High Court to throw out a price-fixing instance brought against them by the Commerce Commission ( KING, 1998 ) .
The below information has been derievd from a study by Edward Gay in NZ trumpeter Feb,2009 about the gasoline monetary value bead by the cardinal participants of NZ oil market. From the information I refer that Gull has decreased its monetary value below the other rivals for all of its merchandise to derive a portion of the oil market whereas Shell, BP and others are selling gasoline a cent higher as they are strong in market and gaining net income comparison to Gull, the new entrant.
All the houses in Petroleum market demand to follow unwritten trust to be in market and to extinguish other new enterants into the Oil Market. No steadfast entirely can increase or decrese the monetary value to acquire a get portion in Market, besides they need to maintain close oculus on the authorities besides. In Mar2005, Mobil increase the Petrol monetary value by 6c a liter to about $ 1.25 cents a liter for leadless 91 but Shell, BP and Caltex didnot follwed, so Mobil backed down on the same twenty-four hours. Again BP tried to travel monetary value upto $ 1.25 but besides forced to turn back, because driver group the Automobile Association expected gasoline monetary values to head up approximately 12 cents to a record monetary value above $ 1.30 a liter shortly, with a dual whammy of higher oil monetary values and lifting revenue enhancements, as gasoline revenue enhancement would increase by 5c + GST from new finnacial twelvemonth ( WEIR & A ; WATKINS, 2005 ) ( NZPA, 2008 ) .
Even with Same selling monetary value and no monetary value war the net income and Market portion can be increased by either cut downing the cost monetary value or by Product distinction and merchandise fluctuations. Jim Law, Mobil pull offing manager said the determination by rivals to cut monetary values was due to Mobil ‘s “ dollar verifier offer ” . Discount of $ 1 on $ 20 gasoline and if clients redeem 4 Vouchers, opportunity to win a 4-wheel-drive vehicle in a lucky draw. Mobil highly successful discounting offer throughout New Zealand caused its rivals to cut costs. ( Dominion Post, The, 1997 ) . Caltex redeem Voucher issued by Pak Ns Save, although non to the full. Carwash and little convininece shop besides attracts consumer towards a peculiar gas station. So Market portion can be increase by adding these non monetary value value to the Product.
BP has largest figure of retail gas station in NZ which is 256, followed by shell 236 ( 2nd largest ) and so by Caltex and mobil to 214 and 215 severally, whereas Gull has merely 33 gas station, so location and presence of the gas station affects the gross revenues of gasoline and market portion addition greatly. BP has largest figure of retail gas station were able to maximise market portion with big volume of sale ( Development, 2008 ) . The figure below shows the retail merchant and its retail in NZ.
Few of the houses create fluctuations in merchandise to pull consumer and increase sale such as Shell has V-power, Gull has 91 Plus which has biofuel blend, which stands there merchandise out the competition and attracts new consumers.
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Frequent fluctuation of monetary value and publicities affects the other industry dependant on Oil industry such as Airlines, Automobiles ( Roeland, 2011 ) .
In the twentieth Centuary the monetary value of Oil has increased drastically with addition in demand by commertial Industry, transit and Motor vehicle use. After World War II the monetary value spiked drastically due to assorted universe events such as Korean war, suez crisis, OAPEC trade stoppage, Iran and Iraq war and so on.
With the formation of OPEC which is group of oligopolist house in Oil Market, Oil monetary value was controlled but non to the full as there were struggles between the oligopolist house and easy entry by other house due to shortage of suppy. In late 80 ‘s the control became really steadfast as the market realised the effects and after consequence of struggle, War and recession on the Oil monetary value and demand.
NZ being paradigm of the international market have few Oil market oligopolist like BP, shell, Mobil, trust, gull etc. NZ market behaves ideally like oligopoly Market with monetary value leading purchase few houses such as BP or Shell and so follwed by others to get by up with the demand and supply constrain of NZ Petrol Market.Even though the Selling monetary value are about same for all the Oil houses, but due to merchandise distinction and merchandise fluctuation the market portion differes for different house. Assorted promotional offer and augmneted merchandise offered by few houses and Grand Ad campaingn raise the Non-price competition in the Oil market of NZ. In close hereafter with consciousness of illeffect of Oligopoly and increase in oil monetary value consumer have started looking for better option for the oil and hence in future the oil monetary value would be really dramatically with presence of better replacement and lessening in resource.With this I conclude the Oil Price Market bahaves about like olipoly market.