Question

Consider an oligopolistic market for breakfast cereals. If there are four brands currently being sold in this market, how would the entry of two or three more brands of cereal pose an entry barrier in this market? Justify your answer with examples and illustrations.

explain oligopoly

Answer 1

Dear sir/ma'am,

The answer for the above question is:

Oligopoly:
^It means Few firms competing with each other and selling homogeneous or
differentiated product, here few firms means more than 2 firms.
^If the firms sells homogeneous product it is called the firms are in Perfect
Oligopoly market.
^If the firms sells Differentiated product it is called the firms are in Imperfect
Oligopoly market.
Considering the oligopolistic market for breakfast cereals which has a 4 existing brands,
the new entry of firms in this oligopoly market will face the following barriers:
1. Control over raw materials:
^ The first barrier is control raw materials, for ex: here the cereal procurement from the farmers
Would have under the control of the existing brands(4 brands) if any new firms wants
to enter this market will not able to procure or get raw materials which is required, this may be
the great barrier for a firms which needs to enter into this market.
2. High set-up cost:
^Requirement of huge capital to set up a firm under this market, can also be another barrier
for a firms to enter into the market.
3. Interdependence:
^ Under oligopoly market all the firms will be independent , so price and output decision will
be taken by group, So they (existing firms) may also stand united against the new one which is
a big barrier for the new firm.
So, these are some of the barriers which prevent the new to enter into oligopoly market.