Evaluating the Effectiveness of an Oligopoly

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Evaluating the Effectiveness of an Oligopoly

By | Jan. 2011
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"Evaluate the effectiveness of this structure for the organization."

Southwest Airlines is part of an oligopoly. An oligopoly is defined as an instance where there are only a small number of producers in a market; due to the small numbers, if one company changes their prices of their goods or services, the others will do the same in order to keep it competitive. Running as an oligopoly can be both helpful and painful for the consumer. For instance, Southwest Airlines has set prices they have for certain flights to certain locations. They will run these prices as long as they competitively can. The price will differ slightly due to economic conditions, i.e. fuel costs, but for the most part, the only real variations show up during high travel times such as holidays. If Delta Airlines decides that they can cost effectively lower their prices for an identical flight to entice consumers to choose them over Southwest, they will. This will cause Southwest Airlines to either lower their costs as well, in order to keep their customers, or they can continue with their set prices and potentially lose revenue. The oligopic structure works well for Southwest Airlines. They are able to offer incentives to keep their competitive edge in their market. They do this by offering to check your first bag free, free in flight beverages, and not charging for carry-ons. While these may not seem like huge operating advantages, many consumers take these things into account when they are purchasing their tickets. When it comes to an oligopoly, the small advantages are what make the biggest difference. Southwest Airlines is a highly effective organization within their market.
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