What is Oligopoly?
- A market condition in which sellers are so few that the actions of any one of them will materially affect price and have a measurable impact on competitors.
An oligopoly can only exist when a few firms are dominating the industry and have the ability to set prices. McDonald’s is not considered a monopoly since it is not a single seller of a good or one that is unique, that McDonald’s is one of the leading companies in the fast food industry, both in the U.S and internationally.
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| McDonald's bases its pricing on its rivals' prices. |
Barriers of Entry
George Stirgler defined an entry barrier as "A cost of producing which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry".
Economies of Scale: They prevent the entries of newer businesses into the industry. McDonald’s aimed to create long run profit. The size of its firm is increasing and its operations when McDonald’s long run average total cost is declining. For example people are buying franchises, they are expanding their size of their firm while decreasing their AVERAGE TOTAL COST.
What is the Concentration Ratio?
The fast food industry is currently dominated by the "Big Four" :
The market in fast food industry is fairly concentrated, with 12 restaurants taking 71% of the market. There give a concentration ration of 12:71. Therefore, McDonald’s holds a 22% market share with $30 billion in sales.
Advertising
McDonald’s advertising campaigns and slogans capture market share over these years, with spend the most advertising money of any fast food restaurant in the country. The advertising of McDonald’s delivers the newest information to consumers. These almost manipulate other fast food restaurants. In addition to the usual media including television, radio, and newspaper ads, even though billboards and signage, sponsors sporting events ranging from Little League to the Olympic Games.
Also with the current Minion trend,
Written by: Yong Ye Yee 0308476
What is Oligopoly? ... emonopoly.blogspot.de
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