The Power Of The Oligopoly Essay

1708 words - 7 pages

The Power of the Oligopoly

Before we can start discussing the US Cottons Industry transformation into an oligopoly industry we need to define some key terms. Oligopoly is defined by Nilsson in Capitalism: Power, Profits, and Human Flourishing as “a few sellers dominate the market. An oligopoly market might have dozens or even hundreds of individual firms but most of them are unimportant in the industry; a small number of them—perhaps only 2 to 20 firms—dominate the industry.” Industry is defined by Investopedia.com as” A classification that refers to a group of companies that are related in terms of their primary business activities. In modern economies, there are dozens of different industry classifications, which are typically grouped into larger categories called sectors. Individual companies are generally classified into industries based on their largest sources of revenue.” A Cartel is defined by John Duffy in Cliff Quick Review Economics as “a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. In the U.S., cartels are illegal; however, internationally, there are no restrictions on cartel formation.” Finally, a supply chain is defined by Geringer, Minor, and McNett in M-International Business as “the process of coordinating and integrating the flow of materials, information, finances, and services within and among companies in the value chain from suppliers to the ultimate consumer”

The definition of the term Oligopoly gives the general framework of the Cotton Industries Organization in the US and its relationship with the rest of the world; it however does not identify the characteristics benefits and drawback of this structure. An oligopoly model is built on the fundamental principle of a small group of persons/companies who agree to not compete with each other, but set prices and policies together. From this foundation they are able to utilize shared ownership, and liability to leverage numerous advantages. The concept of shared ownership and liability also means that they protect each other from external threats; legislative, competitive, or otherwise. It also allows shared impact on the industry in which they are able to exert their will for the purpose of self-interest and reaction from their rivals, but can set policy and price through cooperation. One of the techniques used to maximize the benefits of an oligopoly and predict the moves of your rivals/collaborators is game theory; in which every possible scenario is played off to maximize the benefit for your company, while minimize the impact of retaliation from your rivals. However, even with the ability to predict their rival’s moves these individuals and businesses most commonly engage in collusion, for the benefit of everyone...

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