Managerial Economics Essay Example | Topics and Well Written Essays - 1000 words - 1

Managerial Economics - Essay Example It happens because when the number of firms is few, any change in the price or quality of the products by one company will have an immediate and direct impact on the other companies. When this happens, it is highly likely that the rivals will immediately respond with similar or more aggressive changes. Thus, in oligopoly, companies remain in constant vigil about the actions and reactions of their opponents (Bolotova et al 2005). Also, companies will hesitate to adopt any such tactics to gain market share because the rivals will immediately respond with similar strategies (ibid). When this happens, it seems that most of the companies start giving more attention to advertising and selling costs. As other strategies will not work, companies try to increase their advertisement in order to achieve maximum sale. Similarly, companies will start reducing selling costs so that profits can be maximised. Yet another important feature is price rigidity. In an oligopoly system, prices often remai n rigid because firms are afraid of making changes because of the price-war (Liu & Serfes 2006) Another important point to be mentioned here is the importance of strategy. To illustrate, in oligopoly, it is highly necessary for firms to be careful about their own strategies because they cannot act independently. It is highly necessary for them to decide when to collude with their rivals and when to compete with them. Also, it is highly necessary to be careful while raising or lowering the prices. Admittedly, these features lure the companies to collude in order to reduce uncertainty and also to enjoy monopoly and higher profits. These firms often engage in various forms of collusion, ranging from overt collusion, covert collusion, and tacit collusion. Overt collusion occurs when firms openly engage in agreements like trade associations. Covert collusion is kept hidden in order to hide the results of the collusion. Thirdly, tacit collusion is the result when all firms in an oligopoly act in concert even without the existence of an agreement. One of the most notorious cases of collusion is the lysine price-fixing conspiracy. It took place in the mid 1990s, and various companies from various countries were involved. They were Archer Daniels Midland from the US, Japan companies named Ajinomoto and Kyowa Hakko Kogyo, Korean companies named Sewon America Inc. and Cheil Jedang Ltd. These companies colluded to raise the price of an important animal feed additive called lysine. It is seen that these companies, through the price-fixing, managed to raise the price of the product by 70% (Liski & Montero 2006). Thus, it becomes evident that the cartel helped the companies to raise their profit through gaining monopoly (ibid). It is found that in a perfect market, it is not possible for companies to collude easily because the decisions of a few companies will not impact the market as a whole. However, in an oligopoly market, the collective decision taken by a few companies will have significant impact on the whole market. This will give the companies monopoly and increased profits. Very similar is the case of the beer companies Heineken, Grolsch, and Bavaria, which made a price-fixing deal in Holland, monopolising beer distribution. In fact, these companies collectively controlled 95% of the Holland beer market (Brue & Mcconnell 2006, p. 210). Through collusion, they increased the beer price

Essay Article Example | Topics and Well Written Essays - 250 words

Essay - Article Example r states that the total amount of bribes was more than $24million and even the top level executives of the organization were aware about this ethical violation. These practices by the Wal-Mart are against the legal laws of its base nation. Wal-Mart had violated the legal rules that are stated within the Foreign Corrupt Practices Act. Under this act a local organization is not allowed to bribe officials in foreign markets. Due to this malpractice, the organization started an internal investigation and identified that during the period of 2005 the vice chairman of the organization involved in increasing the expense account of the organization and was making wrong entries in the gift cards account of the organization. Furthermore the article states that the internal investigations were not even clean and were rather conducted to clear the top officials instead of dealing with those who were involved in the unethical practice of bribing. The article even states that those individual who were held responsible for the practice were themselves investigating the case and due to this a clean investigation never took place. Barstow, D. (2012). At Wal-Mart in Mexico, a Bribe Inquiry Silenced. Nytimes.com. Retrieved 23 December 2014, from