Question

What are the competitors of Low cost Airlines? What is its market structure. Is it an oligopoly or monopolistic competition type and if yes how? Can this be explained with a demand supply curve.

Answer 1

Answer:-

Market structure

                     A market structure comprises a number of interrelated features or characteristics of a market. These features include number of buyers and sellers in the market, level and type of competition, degree of differentiation in products, and entry and exit of organizations from the market. Among all these features, competition is the main characteristic of a market. It acts as a guide for organizations to react and take decisions in a particular situation. Therefore, market structures can be classified on the basis of degree of competition in a market.

Monopolistic Competition

                               A monopolistic competition, the structure contains a large number of small firms that can exercise a freedom of entry and exit. In this model, every firm has multiple competitors, yet, each one of them offers slightly different goods. In this cluster of enterprises, each one takes independent decisions about the price and outcome by keeping in mind the market it operates in, a product it sells, and the related cost of production. Although, there is a greater flow of knowledge in the market, yet, it doesn’t depict a perfect market.

The main feature of this market structure is the ability of its products to be differentiated in four categories, including marketing differentiation, human capital differentiation, differentiation through distribution, and physical product differentiation. Moreover, such firms are considered to be profit maximizers. This is because their businesses are smaller, which allows them to keep their focus in managing a business.

Oligopoly

                           The term oligopoly has been derived from two Greek words, oligoi means few and poly means control. Therefore, oligopoly refers to a market form in which there are few sellers dealing either in homogenous or differentiated products. In India, the aviation and telecommunication industries are the perfect example of oligopoly market form.

                           The aviation industry has only few airlines, such as Kingfisher, Air India, Spice Jet, and Indigo. On the other hand, there are few telecommunication services providers, including Airtel, Vodafone, MTS, Dolphin, and Idea. These sellers are closely interdependent to each other. This is because each seller formulates its own pricing policy by taking into account the pricing policies of other competitors existing in the market.

The main characteristics of oligopoly are as follows:

i. Few Sellers and Many Buyers:

Refers to the primary feature of oligopoly. Under oligopoly, few sellers dominate the entire industry. These sellers influence the prices of each other. Moreover, in oligopoly, there are a large number of buyers.

ii. Homogeneous or Differentiated Products:

Implies another important characteristic of oligopoly. In oligopoly, organizations either produce homogenous products (similar to perfect competition) or differentiated products (as in case of monopoly). If organizations produce homogeneous products, such as cement, asphalt, concrete, and bricks, the industry is said to be pure or perfect oligopoly. On the other hand, in case of differentiated products, such as automobile, the industry is known as differentiated or imperfect oligopoly.

iii. Barriers in Entry and Exit:

Prevents the entry of new organizations. The barriers of entry and exit distinguish the oligopoly market from monopolistic competition. In oligopolistic market, new organizations cannot easily enter the market due to various legal, social, and technological barriers. In such a case, existing organizations have a complete control over the market.

iv. Mutual Interdependence:

Refers to one of the important characteristic of the oligopoly market structure. Mutual interdependence implies that organizations are influenced by each other’s decisions. These decisions include pricing and output decisions of organizations.