Concept Of Price War And Oligopoly Theories Economics Essay

Concept Of Price War And Oligopoly Theories Economics EssayExperts argue that the model of scathe fight is a position of tone in just about tack countries, assess the arguments for and against such behaviour. Discuss the impact of this behaviour in any pains using contrasting oligopoly theories.In this essay I pass on address the subject of toll war in industrialised countries. From different angles I will to try to break down and essay the idea that expense war in industrialised countries is a fact of life.The basic and underlying concept of a harm war is that ii or more cockeyeds in an manufacturing set out or careen their own prices with the knowledge that in an oligopo totalic environment the other blottos in that patience will lower theirs too so they match up. This is due to the interdependence in their interaction with both the firms in that industry. Price fixing plays a major role in a price war. My method of assessing whether tell tell apartment i s true or false is to weigh up the pros and cons. From at that place I layabout make an informed decision and will be able to explain it through outlined discussions and ideas, and by visual tending if necessary.By the end of my essay I will be able, also, to discuss, with help of oligopolistic theories, the effect that a price war has on any industry.A price war is the concept that refers to economic activity of high private-enterprise(a) rivalry between a few firms in a event industry, with complex rounds of price reductions. If one firm inflicts their prices or a case-by-case price of a peachy, then the other firms in that industry will do the same to match that price.In an industry, in which a state of oligopoly is app bent (i.e. only a few sellers operate), each firm is instead capable of producing enough of the industry total output, resulting in their ability to usurp the market price.A real world example of this is in the umber berry industry where in that resp ect are trio major producers Starbucks, Cafe Nero and Costas Coffee. These 3 large providers of coffee produce such large percentages each of the coffee industry that if, say, Starbucks were to increase their supply, the price of an average coffee would decrease considerably. An increase in output for one of the coffee providers will result in the price to decrease for the other firms in the industry.To explain further, if Starbucks produces double its output, the price of coffee from Starbucks drops hugely. all the same, most people are not wholly trustworthy to a particular brand, so Costas Coffee and Cafe Nero drinkers will switch to the cheaper Starbucks. As a result, the price of Costas Coffee and Cafe Nero coffee drops too. These three major brands are part of a set of economic activities where each of their decisions on supple not only affects theirmicro ESSAY 2 ANTHONY STADDON 000457496 PAGE 3own sales but also of the firms competing against them. such strategic situat ions preempt involve competition or collusion.Collusion= all firms in an industry agree to cut back on merchandise by a certain amount to increase both prices and profits. rival= all firms in an industry try to increase production with the bearing to undermine competitors and gain as more customers as ass be attained.The outcomes of both collusion and competition can be massively different for consumers and producers.For example, collusion benefits producers most due to the fact that as long as they keep colluding, their profits will continue to increase. However, collusion has a blackball effect on consumers because it results in higher prices and decreased output.Collusion, unfortunately, is uncommon and many industries are dominated by heavily competing firms. If such collusion genuinely happened then government intervention may be necessary to entertain consumers.All these ideas of collusion and competition between firms in an industry are the major foundations and comp onents of a price war. In the short term, consumers benefit rattling well from such activities, due to the chance of benefiting from lower prices. Also in the short run a negative impact can scratch producers by the result of lower prices leading to reduced profit margins. In the long term, the major firms in any particular industry can gain from a price war with increased profits etceteraPrice wars do satisfym to happen in every industry in nearly shape or form. There is a beauteous amount of reason why that is. To start with there are competitors whom force wish to concentrate on a particular product and through this product try to gain market share by producing its flick good at decreased prices.There is also penetration set where firms may offer/provide lower prices of new brands of a good or product into an already highly established market.Process optimisation is also a cause in that firms may choose to reduce prices rather than output with the plan regulate and sus tain the economy of scale.A big cause for price wars is predatory pricing (albeit illegal). This refers to when a firm may set the price extremely low, even too low, on a good, in order to ddestroy other firms completely in that industry. last and in some ways most importantly, especially in background with this essay title, is the cause oligopoly. Oligopoly is where all economic actions on prices and outputs for each firm in an industry are interdependent.Reactions to price changes and ultimately price wars can vary. The primary reaction to a price war price change or price reduction is consideration and caution. For example, has the competing firm decided whether it is doing a short term or a long-term priceMICRO ESSAY 2 ANTHONY STADDON 000457496 PAGE 4change? If its short term, a firms reaction should normally be ignoring the change. Otherwise, short-term changes can be see as cataclysmic changes and lead to big price wars.However, for the long-term there is not just a singular reaction. A firm could harbour their price, split their product into a premium version and a basic. Or the most common highly anticipated reaction is reduce the price and keep in line with ones competitors.Now its quite easy to see why a price might be good and benefit certain people. We can see that producers and consumers can benefit from them in some way and at some point. scarce in the end there is also a negative impact of price wars. As previously stated two or more firms compete in an industry and in turn both reduce their prices. We see that one can benefit whether you are a producer or consumer due to lower prices but this is not always the case. When these firms compete and initiate a price war, it is normally understood that both firms lower value along with price. at long last the firms lose profit and the consumer loses value.In my conclusion, I believe that price wars in the short-run can improve profits and can allow consumers a small space of time to take advant age of lowered prices. But in the end they cause more trouble than they are worth. However they also seem unavoidable as nearly every angiotensin-converting enzyme industry in an economy has an event of a price war at some point. In the supermarket industry, Sainsbury and Tesco compete in a price war. O2 and T-mobile do the same in the mobile industry. Starbucks and Cafe Nero show signs too. The list of price wars in different industries is long but clearly outlines that the argument the concept of a price war is a fact of life in industrialised countries is pretty much correct.