competition, there are a large number of small businesses. In an oligopoly, there are a small number of large businesses dominating a particular market. Businesses keep a close eye on the decisions made by the few other businesses in the industry.
Because there is not much competition, businesses in this type of market do not change prices often. In order to attract customers away from the small number of competitors they face, businesses in an oligopoly offer incentives, including bonuses and rebates.
The characteristics of an oligopoly are
– An industry dominated by a small number of large businesses.
– Businesses sell either identical or slightly differentiated products.
– Businesses give incentives instead of changing prices.
– Significant barriers exist to enter industry.
Oligopoly Models
Oligopoly is a common market structure because many industries are difficult to break into. Anyone can open a lemonade stand with just a few dollars, but it takes millions and millions to build and operate a car factory. As a result, lemonade is a pretty competitive market, while the automobile industry is an oligopoly.
The automobile industry is considered an oligopoly because it is dominated by a small number of large companies. These companies all sell similar cars, such as four-door sedans, minivans, and SUVs.
Another good example of an oligopoly is the airline industry. This industry is dominated by a small number of large companies. These businesses offer their customers similar products. However, certain airlines go to certain cities, while others do not. Airline companies also have incentives to attract customers, such as ticket upgrades or free air miles.
Considering Competition
Businesses compete with each other as they pursue the profit motive, but they take into account the type of competition they face before they make decisions.
The four different market structures you have examined show the differences between the competitive situations faced by producers operating in different markets.
Remember that the level of competition varies depending on the number and size of competitors, the type and quality of their products and services, and their degree of market control over price.
The continuum of market structures
Market Structure Review
From the largest corporation to the humblest small business, participating successfully in the free-market system requires a good plan, lots of determination, and the willingness to take some risks. A person who starts a new business is a risk taker. We call these people entrepreneurs. An entrepreneur is an individual who begins, manages, and bears the risks of a business.
Entrepreneurs play an important role in economics by offering consumers new ideas, new products, or new services. They compete in existing markets and sometimes create entirely new markets. Entrepreneurship is difficult and risky because many new businesses fail. But when successful, entrepreneurship contributes to the growth and prosperity of the overall free-market economy. Entrepreneurs create jobs and encourage a greater exchange of goods and services.
An Entrepreneur’s Motivation
There are many reasons why entrepreneurs decide to start a business. Henry Ford wanted to produce cars more efficiently; Oprah Winfrey wanted to help people make their lives better; Steve Jobs wanted to provide customers with user-friendly personal computers and new entertainment ideas. These are just three examples of innovative and successful entrepreneurs. Entrepreneurs often share common motivations. The also share common characteristics.
Motivations and Characteristics of Entrepreneurs
– Autonomy: Entrepreneurs like to work for themselves.
– Profits: Entrepreneurs are driven by their quest for profits. Successful entrepreneurs can create wealth rapidly.
– Risk: Entrepreneurs have a low level of risk aversion, since investing money in their own businesses is very risky.
– Innovation: Entrepreneurs need innovation in the product, service, or business process in order to be successful.
Innovation
One key to becoming a successful entrepreneur is innovation. The development of new devices, ideas, or ways of doing things helps entrepreneurs sell more goods or provide more services. Innovation is how businesses create new solutions to satisfy their customers’ needs and wants. Innovation includes the creation of more effective products, systems, services, or technology.
Entrepreneurs’ Innovations
Entrepreneurs innovate by creating
– New products.
– New production methods.
– New markets.
– New sources of supply.
The Innovation Game
Entrepreneurs innovate by introducing new means of production, new products, and new forms of organization. Innovations consist of inventions, discoveries, and new methods of production. Sometimes, innovations can change the entire economy.
One of the biggest business sectors in the world is the media industry. The media provide a service that nearly every person consumes in one way or another.
Because the media are a part of nearly every consumer’s life, they are important to producers. Businesses use the media to advertise their message to potential customers. Almost every business relies on the media in some way to stay in business.
Unlike some businesses with a specialized customer base, media companies can sell to everyone – consumers and producers alike.
If a satellite turns in the desert and there is no one there to see it, does it still reach thousands of viewers?
Advertising Dollars
Media companies can make money by selling magazines, newspapers, televisions subscriptions, Internet services, and more directly to consumers. But for most media companies, the bulk of their profits come from selling advertisements. In fact, the mass media and news media make 90 percent of their revenues from advertising. If it were not for advertising, most media companies would not exist.
Businesses spend a lot of money on advertising. In 2012, companies spent more than $152 billion on advertising in the United States and more than $490 billion worldwide.
What Advertisers Are Buying
Advertisers pay a lot of money to media companies, but what exactly are they buying? In one sense, they are simply purchasing time or space: ink on a page, pixels on a screen, or 30 seconds of time. But what advertisers are really paying for is the audience – viewers, listeners, readers, browsers, or whoever might be exposed to the ads. Advertising is all about buying access to an audience.
Media companies provide content – shows, articles, information – to attract an audience so that they can turn around and sell that audience to advertisers. In the world of the media, the consumers are also the product.
How Visible Is It?
Because they pay high prices to advertise