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Oligopoly in US

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Oligopoly in the US
Oligopoly has remained to be a long standing problem in the US since time immemorial. The major reason for its entrenchment in many industries is due to the lack of understanding of what oligopoly is. Most citizens confuse it with monopoly while the rest fail to notice its existence. Oligopoly was very prevalent in the airline industry in the United Sates. The existing companies tried their best to keep out newcomers in the industry. Airlines like United and American managed to keep their competitors out of their business routes by uniting to control the slots at Chicago, Washington, and New York airports (Wu 1). In the credit card industry, new companies were also not spared. Maser Card and Visa spent much of their time preventing American Express from joining through the creation of parallel policies and other underhand methods.
The Justice Department tried to control the prevalent oligopoly in the US back in the twentieth century by going after the oligopolistic cartels leading to positive milestones in the fight against the practice. Cartels in the tobacco industry and oil such as Standard Oil were eliminated in the process. The underlying conviction at the time was that any firms which maintained same prices though not in agreement on the same should be considered as conspirators in price-fixing. Delta and US Airways were thus regarded as price-fixers at that time. The fight against Oligopoly, however, faced serious backlash from critics who argued that firms should not be punished for parallel pricing as if this was the case, every gas-station owner would be regarded as a felon.

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Oligopoly is still common in the US cellular phone market where it is highly prevalent with companies like Sprint, AT&T, Verizon and T-Mobile controlling around 90% of the market. Many consumers fail o notice the existence of oligopoly as they are usually misled by product labeling. They fail to see that most of the products they regularly use come from just a few giants. For example in the toothpaste manufacturing, Colgate-Palmolive, and Procter & Gamble control over eighty percent of the toothpaste market (Wu 1). The oligopolistic problem has become highly prevalent because the current approach focuses mainly on monopoly as it is seen as the greater evil hence the failure to address the practices by cartels in various industries. When a few firms engage in same practices, though they may be harmful, many usually shrug off and say that the market is competitive and thus the companies should be left alone.
Analysis
Oligopoly is a market structure in which a few firms control the market supply and enjoy a monopoly kind position due to the high barriers of exit and entry that they impose. The characteristics of this market structure include interdependence, group behavior and high advertising and selling costs. The firms operating in an oligopoly depend on each other for decision making as any changes in price or output level by a company may lead to retaliation by other companies. Each firm in oligopoly, therefore, considers not only its performance but also that of its rivals. The interdependence ensures that no major firm loses its leadership due to a price or strategy decision. Each firm has to invest heavily in advertising as there is intense competition from the other firms as the numbers of firms in the industry are few. Each company, therefore, tries to outdo the rest through aggressive sales promotion and defense of its activities unlike in a monopoly.
An Oligopoly can be better explained through the kinked demand curve that the firms in the market display.
Kinked Demand Curve
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The revenue maximization occurs when MR=MC. This implies that a change in MC will not change the market price. Demand is relatively elastic above the kink as the prices of all other firms remain unchanged. On the other hand, demand below the kink is relatively inelastic as a price cut by a firm will result in price cuts by other firms leading to price wars. The oligopolist will, therefore, maximize his returns by producing at the kink point, which is the equilibrium point. The firms make supernormal profits as AR is greater than average costs.
The kinked demand curve makes various assumptions. First, all firms are profit maximizers. Secondly, if a firm increases its price, other firms do not do the same. Hence, demand is price elastic for a price increase. If a firm, on the other hand, reduces its prices, the rest of the firms will do the same as they would not like to lose their market share. This means that demand is price inelastic for a price cut.
Collusive Oligopoly
Many of the times, firms in oligopoly do collusion and form a cartel. The firms, therefore, maximize their profits by fixing prices at best possible position. They then impose quotas that ensure output meets the profit maximizing requirements.

Evaluation and Conclusion
The Oligopoly in the US can be solved if more regulations are put in place especially regarding cartels. Firms in oligopolistic markets are intent on maximizing their profits and therefore collectively fix prices at a certain level that may be too high. Because these companies have the financial capability, they do engage in an extensive advertisement of their products and services to maintain their customers. Other firms will not be able to meet this expenditure and therefore can only watch and follow. The US government should enact and enforce laws that are against any form of parallel activity by companies, and anyone found culpable heavily fined, deregistered or their assets shared among other companies.
Work Cited
Wu, Tim. “The Oligopoly Problem – The New Yorker”. The New Yorker. N.p., 2016. Web. 28 Nov. 2016.

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