OLIGOPOLY MARKET OF
Jaipuria Institute Of Management, Lucknow
THE EXISTING DUOPOLY
Oligopoly is said to prevail when there are few firms or sellers in the market producing or selling a product. Oligopoly is of two types- pure Oligopoly where the product is same and differentiated oligopoly where the product is different. When we talk about soft drink market in India, the two major names which come in our mind are PepsiCo India and Coca Cola India Ltd. Which comprise of almost the whole chunk of soft drink market and that is what makes that market a differentiated oligopoly and almost a perfect duopoly. They have been present since almost three decades now and have not faced any kind of competition since their inception in Indian market CHARACTERSTICS
Interdependence- Less number of firms results in greater interdependence. Any change in price or output by a firm has a direct effect on the rival, which then retaliates and changes its own price or output. So, the oligopolist not only considers the market demand for the industry’s product but also the reaction of other firms in the Industry and more than one reaction pattern is possible from the rival’s side. This phenomenon is evident in soft drink as well. Since their inception in Indian market every time there has been some specific price setting it h was a simultaneous move and not a sequential move. Coke was a company ruling the markets before Pepsi entered. Earlier the price of coke was cost based i.e. it was decided on the cost which was spent on making the product plus the profit and other expenses. But after the emergence of other companies especially the likes of Pepsi, Coca-cola started with a pricing strategy based on the basis of competition. Nowadays more expenses are spent on advertising by soft -drink companies rather than on manufacturing .Coke has brought in a revolution especially in Indian markets with the Rs.5 pricing strategy which was very famous. It was the first company to introduce the small bottle of Coke for just Re.5 .This campaign was very successful especially with the price conscious Indian consumers. Even today most prices of Coke are decided on the basis of the competition in the market. Pepsi again decides its price on the basis of competition (rival’s action). The best thing about the company Pepsi is that it is very flexible and it can come down with the price very quickly. The company is renowned to bring the price down even up to half if needed. Though lowering the price would attract the customers but it would not help them cover up the cost incurred in production hence causing them losses. It has covered all its losses and is now growing at a rapid rate.
Group behavior-Theories of perfect competition and monopolistic competition (with more number of firms) present no difficult problem of making suitable assumptions about human behavior. In case of Perfect Competition and monopolistic competition we assume that business firms work to maximize their profits. Assumption of profit maximization gives overall good result in the situations where mass of people are involved and there is no interdependence of firms. Similarly theory of monopoly deals with soul individual and it is appropriate to assume the profit maximizing behavior on his part. As there are two major firms in Indian soft-drink industry, and the behavior is almost similar we can consider it a group and that is the reason why this behavior can only be anticipated and not predicted. They might work for common benefits or pull each others legs. Non price competetion- more prominent than price competition...
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