Question

The number of competitors in unregulated transportation markets differs widely between rail, air, marine, truckload and less-than-truckload (LTL) trucking.

Draw and explain an appropriate economic model (or models) that illustrate(s) why in some modes of transport, like airlines and LTL trucking, firms are few in number and in others, like truckload trucking, companies are so many in number.

Answer 1

THIS IS TRUE THAT THE NO. OF COMPETITORS DIFFER WIDELY BETWEEN AIR, RAIL, MARINE, TRUCKLOAD AND LTL. THIS CRITERIA DEPENDS UPON THE NUMBER F FIRMS THAT CAN ENTER THE MARKET AND OPERATE THERE.  

Airlines are said to form an oligopolistic market structure. under such a market there are very few firms in market that dominate the market. the reason behind this is the amount of investment required in an airlines is huge, so the barriers to entry are huge enough to discourage the potential competitors out of the market.

in a simple oligoply market structure, where there are few firms , firms tend to rely less on price competition. this is because any increase in price by one firm would not be replicated by other , on the other hand , any decrease in price by one firm would immediately be adopted by all other firms present in the market. this is why the DEMAND CURVE IN THE OLIGOPOLISTIC COMPETITION IS A KINKED SUPPLY CURVE AS GIVEN BY PAUL M SWEEZY. IT IS AS FOLLOWS

IN THE DIAGRAM , THE DEMAND CURVE IS DIFFERENT FOR DIFF CIRCUMSTANCES. AT POINT P THERE IS AKINK. IF A FIRM RAISES ITS PRICE ABOVE IT , NO FIR WOULD RISE ITS PRICE AnD SO DEMAND IS ELASTIC ANd DEMAND CURVE IS FLAT. WHEREAS BELOW P IF A FIRM REDUCES PRICE, ALL FIRMS'S WOULD DO SO FIRM'S DD CURVE IS INELASTIC AND STEEP..

THE SUPPLY CURVE OF THE OLIGOPOLY DOESN'T REALLY EXIST. AS THEY SEARCH FOR TH BEST PRICE OUTPUT COMBINATION.

coming on to truckload trucking companies, there are a large number of firs, which shows features of perfect competition. in such a type of market, there are large number of buyers and sellers each controlling very insignificant part of the market. such that one firm is a price taker. it takes the price as given and provides services at that price only.

under perfect competition, the demand curve is the AR CURVE that is equal to the MR CURVE all horizontal, which shows any amount of good is demanded at that very price. the equilibrium is decided by the intersection of MC curve and the MR curve.

the supply curve is often the rising portion of the marginal cost curve. equilibrium is where suply equals demand that is at point Q in the figure.