OLIGOPOLISTIC INTERDEPENDENCE

Oligopolistic Interdependence and Collusive Action

[Name of Supervisor]

Oligopolistic Interdependence and Collusive Action

Introduction

Every firm aims for the continuous progression and succession in the market place. It often seems to be difficult to decide the strategies and actions to be conducted in order to achieve a leading position specifically in the oligopoly market. Oligopoly market is considered as one of the complicated market structures. There are several theories and models involved in this market structure. Duopoly is one of them which are comprised of two producers only. It has a market pricing which is much similar to monopoly with kinked demand curve. It decreases the financial gain. In order to achieve success in the oligopolistic market, the mangers of the firms must include such theories, non-price adjustments, the prisoner's dilemma, price leadership, suitable usage of barriers and models in the planning process as producer interdependence (Gregory, 2004).

Discussion

Interdependence is considered as one of the most significant elements of an oligopolistic firm. There are some products that are involved in oligopoly which allows more than one producer but still not that much as it is present in the competition of monopoly or it can be termed as a pure kind of competition which make its very complicated to follow the actions of various competitor firms. There is small number of producers that are included in the structure of oligopoly market, output solutions and cost is observed to be interdependent resulting in the cooperation of the firms to a contract that is profitable for all of those firms. It can further raise the rate of their joint profits. The term oligopoly is further classified into pure that refers to the manufacturing of heterogeneous products and homogeneous products as well as the differentiated (Mulhearn and Vane, 2012 pp.341-357).

It is widely commonly said that higher the number of products that are differentiated result in the interdependence of more firms. To be interdependent is considered to be very beneficial for the firms. In order to find the effective measures for solving the concerns of barometric and dominant leadership, it is decided by some of the firms to establish cartel, which is the formal collusive agreements made on relative market shares and price which is established by a number of firms that behave in the form of unreal pure monopoly. The form of collusion is also conducted by the incentive between different oligopolistic firms for the cooperation. Collusion supports the firms to maintain their positions as autonomous and legally independent and on the same time taking all the effective advantages from the cooperation of the firms. When two firms secretly make an agreement on various terms including production and price control then collusion is occurred (Compecon Limited, 2002).

For example, Master Foot and OmniRun might secretly agree to increase their shoe prices to $150 a pair. If there are only two athletic shoes firms in the market, then there would be no choice for the purchasers but to pay the $150 price. Consequently, the two firms would perform ...