Presented by Abdulmohsin Aljalal ID 201602121 Mohammad Sindi
Presented by: Abdulmohsin Aljalal ID: 201602121 Mohammad Sindi ID: 201602800 Yazeed Alsaadoun ID: 201600072 Course Instructor: Prof. Abdulrwaaf Hadili
Outline Introduction Characteristics of Oligopoly Types of Oligopoly Merging and acquisitions and corporate consolidation role in an oligopoly Conclusion
Introduction Oligopoly Definition Oligopoly is a market where a handful of companies control or dominate an entire industry, co-existing peacefully without much in the way of price competition. Oligopoly Structure Oligopolies structure in a way where there a few interdependent firms dominate the market.
Top Characteristics of Oligopoly 1 - Monopoly Power - There is a clement of monopoly power in oligopoly - Since there are only a few firms and each firm has a large share of the market - In its share of the market, it controls the price and output - So, an oligopoly has some monopoly power.
Top Characteristics of Oligopoly 2 - Interdependence of Firms - Interdependence means that actions of one firm affect the actions of other firms - A firm considers the action and reaction of the rival firms while determining its price and output levels - A change in output or price by one firm evokes reaction from other firms operating in the market - No firm can ignore the actions and reactions of rival firms under oligopoly
Top Characteristics of Oligopoly 3 - Few firms - For example, the market for cell phone services providers in Saudi Arabia exhibits oligopolistic structure as there are only few providers of these services.
Top Characteristics of Oligopoly 4 - Non-Price Competition - Firms are in a position to influence the prices - They try to avoid price competition for the fear of price war - They follow the policy of price rigidity - Price rigidity refers to a situation in which price tends to stay fixed regardless of changes in demand supply conditions
Top Characteristics of Oligopoly 5 - Barriers to Entry of Firms - The main reason for few firms under oligopoly is the barriers - Large capital, control over crucial raw materials, etc, are some of the factors that prevent new firms from entering into industry - Because each firm determine the price of its product, they takes into account the reaction of the other firms to its own action.
Top Characteristics of Oligopoly 6 - Large Numbers of Consumers - In this market, there are large numbers of consumers to demand the product
Top Characteristics of Oligopoly 7 - Indeterminate Demand - The demand curve under oligopoly is indeterminate because any step taken by his rivals may change the demand curve.
Types of Oligopoly 1 - Pure/Perfect Oligopoly: - If the firms produce the same products, then it is called pure or perfect oligopoly. - Examples of pure oligopoly industries: 1. Airline Industry 2. Pharmaceuticals
Types of Oligopoly 2 - Imperfect or Differentiated Oligopoly - If the firms produce differentiated products, then it is called differentiated or imperfect oligopoly. - Examples of differentiated oligopoly industries: 1. Soft Drinks 2. Cigarettes
Types of Oligopoly 3 - Collusive Oligopoly - If the firms cooperate with each other in determining price or output or both, it is called collusive oligopoly. - Collusive Oligopoly is illegal - An example of collusive oligopoly is OBEC
Types of Oligopoly 4 - Non-collusive Oligopoly - If firms in an oligopoly market compete with each other, it is called a non-collusive or non-cooperative oligopoly - Firms use methods like advertising, better services to customers, etc. to compete with each other
Merging and Acquisitions - Small business are the backbone of the economy - Golden age of small business - The rate at which new business are being created is steadily falling since 1970 s
Merging and Acquisitions - High records in merging and acquisitions - Merger Monday - Led to sectors of the economy to be ridiculously consolidated - 32 financial firms, 4 in 2018
Merging and Acquisitions - 10 airlines in 2000 to just 4 today! - Dominate 85% - Rental car: 3 business, dominate 90% - Beer industry: 70% dominated by 20 companies
Merging and Acquisitions - Can industry: 2 players, 95% - Anti Trust Laws - A monopoly is outlawed. - Pros and cons of M&A’s
Merging and Acquisitions - Tension: allowing that and preventing them from causing harm - Balance tipped in favor of being manager friendly - Problems: workers, consumers, and products them selves. - Consumers
Merging and Acquisitions - Consolidation ancillary revenues - 2008: American Airlines introduces it - Generating 543 million in 2007, 5 billion in 2017 - Consolidation gives power
Merging and Acquisitions - Compete or survive within supply - Eyewear industry - Oakley vs. Luxottica - Last victim: “The products themselves”
Merging and Acquisitions - Receivers - No incentives to improve
Conclusion - There are law to prevent the worse events of consolidation - Aggressive enforcements - Strict standards - Impower: 1. Federal Trade commission 2. U. S Department of Justice
The End Thanks for listening Any Questions?
- Slides: 24
