Question

Many markets in the U.S. are characterized by interdependence – firms know that their competitors will respond to whatever actions they take. Discuss the nature and consequences of this interdependence. How do the following elements relate:

1. What are the principal features of Oligopoly? How does it come about?
2. Identify three markets in the U. S. economy that are oligopolistic in nature. For each, explain the nature of the interdependence observed in those markets and provide an example of the strategic behavior involved.
3. What role does the government play in regulating oligopolies?
4. Discuss two examples of such regulation in the U.S. economy.

• Characteristics of Oligopoly
• Mergers – including recent examples
• Cartels
• Industry concentration
• Anti-trust and regulation including examples

Answer 1

A) features oligopoly

1) an dominated industry by a small number of large firms

(2) firms sell either differentiated or identical products

(3) In oligopoly significant barrier to entry.

Oligopoly arises, a small number of large firms have most of the sales in an industry.

Oligopolies are characterized by mutual interdependence where decisions various such as output, price, advertising, etc depend on the other firm decisions

B)Three market of US That are oligopoly in nature - computersoftware, mass media, auto mobiles

1)Automobile manufacturing another example of an oligopoly, that leading manufacturers auto in the United States being GMC, ford and Chrysler.

2)News outlets and national mass media are a prime example of an oligopoly,U.S. Outlets media 90%owned by six corporations: Walt Disney (DIS), Time Warner (TWX), CBS Corporation (CBS), Viacom (VIAB), NBC Universal, and News Corporation (NWSA).

3) Smartphones operating systems and computers provide excellent examples of oligopolies. Apple iOS and Google Android dominate smartphone operating systems, while operating systems of computer are overshadowed by Apple and Windows.

C) US government play an important role in regulating activities of oligopolies mainly through the enforcement of antitrust law. These law passed by Congress to restrict the large corporations abilities to monopolize markets either independently or collectively (in the case of an oligopoly),

Antitrust Act represented expansion role of the government’s in regulating businesses and its application to subsequent questionable business practices required the passage of additional statutes intended to loopholes closeand improve the ability of government’s to enforce antitrust laws.

The major government effort along these lines was passage of the Federal Trade Commission Act of 1914, which created,the Federal Trade Commission (FTC). The purpose of established FTC is for the purpose of investigating possible violations of the Sherman Antitrust Act, and the commission was given authority to both prevent the creation of oligopolies and to file civil suits against those businesses found to be violation of the law.

D) Mergers, horizontal Mergers especially are a feature trait of oligopolistic industries.

Intense competition and Inter dependent decision-making encourages oligopolistic firms to cooperate

a group of apparently independent producers whose aim is to increase their profit collective by means of price fixing, limiting supply called cartel

Antitrust laws rferred to as competition laws, that are developed by the U.S. government to protect consumers from predatory practice of business

Example - in 2013 apple lost an appeal U.S.Department of Justice ruling that found it guilty in prices of ebooks fixing. Apple was found liable to pay $450 million in damages.