Which of the following industries would you classify as an oligopoly? Which would you classify as monopolistically competitive?
Explain your answer. If you are not sure, what information do you need to know to decide?
a. Athletic shoes
b. Restaurants
c. Watches
d. Aircraft
e. Ice cream
To classify an industry as an oligopoly or monopolistically competitive, we need to consider certain factors.
An oligopoly is a market structure where a small number of large firms dominate the market. These firms usually have significant control over pricing and output decisions. Key characteristics of an oligopoly include high barriers to entry, limited competition, and interdependence among the firms.
On the other hand, monopolistic competition is a market structure where there are many firms, each offering differentiated products. These firms have relative freedom in determining prices and outputs, but they face some competition because of the product differentiation. Key features of monopolistic competition include low barriers to entry and product differentiation.
a. Athletic shoes: This industry is typically an oligopoly. There are a few major players, such as Nike, Adidas, and Under Armour, who dominate the market and have significant control over pricing and marketing strategies. The high barriers to entry, the limited number of competitors, and the interdependence among the firms make it an oligopoly.
b. Restaurants: Restaurants generally fall under monopolistic competition. There are numerous restaurants offering different types of cuisines, concepts, and experiences. The industry has relatively low barriers to entry, allowing new restaurants to enter the market easily. Each restaurant differentiates itself based on factors like the menu, location, ambiance, and pricing.
c. Watches: The watch industry can be considered an oligopoly. A few well-known brands, such as Rolex, Omega, and Tag Heuer, dominate the market and have significant pricing power. There is limited competition due to high brand recognition, reputation, and barriers to entry. Additionally, these firms often collaborate on pricing and distribution strategies.
d. Aircraft: The aircraft industry is usually an oligopoly. A small number of large companies, such as Boeing and Airbus, dominate the market. These companies have substantial control over pricing and output decisions, and there are significant barriers to entry due to high capital requirements and regulatory complexities.
e. Ice cream: The ice cream industry falls under monopolistic competition as there are numerous brands and flavors available. There are low barriers to entry, allowing for new producers to enter the market easily. Each brand differentiates itself through flavors, ingredients, and marketing strategies.
In summary, the industries that can be classified as oligopolies are athletic shoes, watches, and aircraft. The industries classified as monopolistically competitive are restaurants and ice cream.