I.

INTRODUCTION

Oligopoly is a market structure in which a small number of firms have the large majority
of market share. An oligopoly is similar to a monopoly, except that rather than one firm, two or
more firms dominate the market. There is no precise upper limit to the number of firms in an
oligopoly, but the number must be low enough that the actions of one firm significantly impact
and influence the others.
Main Characteristics:
1. Interdependence:
The foremost characteristic of oligopoly is interdependence of the various firms in the decision
making.
This fact is recognized by all the firms in an oligopolistic industry. If a small number of sizeable
firms constitute an industry and one of these firms starts advertising campaign on a big scale or
designs a new model of the product which immediately captures the market, it will surely
provoke countermoves on the part of rival firms in the industry.
Thus different firms are closely interdependent on each other.
2. Advertising:
Under oligopoly a major policy change on the part of a firm is likely to have immediate effects on
other firms in the industry. Therefore, the rival firms remain all the time vigilant about the moves
of the firm which takes initiative and makes policy changes. Thus, advertising is a powerful
instrument in the hands of an oligopolist. A firm under oligopoly can start an aggressive
advertising campaign with the intention of capturing a large part of the market. Other firms in the
industry will obviously resist its defensive advertising.
Under perfect competition advertising is unnecessary while a monopolist may find some
advertising to be profitable when his product is new or when there exist a large number of
potential consumers who have never tried his product earlier
3. Group Behavior:
In oligopoly, the most relevant aspect is the behavior of the group. There can be two firms in the
group, or three or five or even fifteen, but not a few hundred. Whatever the number, it is quite
small so that each firm knows that its actions will have some effect on other firms in the group.
In contrast, under perfect competition there are a large number of firms each attempting to
maximize its profits.
4. Competition:
This leads to another feature of the oligopolistic market, the presence of competition. Since
under oligopoly, there are a few sellers, a move by one seller immediately affects the rivals. So
each seller is always on the alert and keeps a close watch over the moves of its rivals in order
to have a counter-move. This is true competition, True competition consists of the life of
constant struggle, rival against rival, whom one can only find under oligopoly.

5. Barriers to Entry of Firms:

As there is keen competition in an oligopolistic industry, there are no barriers to entry into or exit
from it. However, in the long-run, there are some types of barriers to entry which tend to restrain
new firms from entering the industry.

These may be:

(a) Economics of scale enjoyed by a few large firms;

(b) Control over essential and specialized inputs;

(c) High capital requirements due to plant costs, advertising costs, etc.

(d) Exclusive patents; and licenses; and

(e) The existence of unused capacity which makes the industry unattractive.

When entry is restricted or blocked by such natural and artificial barriers the oligopolistic
industry can earn long-run supernormal profits.

6. Lack of Uniformity:

Another feature of oligopoly market is the lack of uniformity in the size of firms. Firms differ
considerably in size. Some may be small, others very large. Such a situation is asymmetrical.
This is very common in the American economy. A symmetrical situation with firms of a uniform
size is rare.
7. Existence of Price Rigidity:

In oligopoly situation, each firm has to stick to its price. If any firm tries to reduce its price, the
rival firms will retaliate by a higher reduction in their prices. This will lead to a situation of price
war which benefits none. On the other hand, if any firm increases its price with a view to
increase its profits; the other rival firms will not follow the same. Hence, no firm would like to
reduce the price or to increase the price. The price rigidity will take place.

8. No Unique Pattern of Pricing Behavior:

The rivalry arising from interdependence among the oligopolists leads to two conflicting motives.
Each wants to remain independent and to get the maximum possible profit. Towards this end,
they act and react on the price-output movements of one another which are a continuous
element of uncertainty.

On the other hand, again motivated by profit maximization each seller wishes to cooperate with
his rivals to reduce or eliminate the element of uncertainty. All rivals enter into tacit or formal
agreement with regard to price-output changes.

It leads to a sort of monopoly within oligopoly. They may even recognize one seller as a leader
at whose initiative all the other sellers raise or lower the price. In this case, the individual sellers
demand curve is a part of the industry demand curve, having the elasticity of the latter. Given
these conflicting attitudes, it is not possible to predict any unique pattern of pricing behavior in
oligopoly market.

9. Indeterminateness of Demand Curve:

In market structures other than oligopolistic, demand curve faced by a firm is determinate. The
interdependence of the oligopolists, however, makes it impossible to draw a demand curve for
such sellers except for the situations where the form of interdependence is well defined. In real
business operations, the demand curve remains indeterminate. Under oligopoly a firm can
expect at least three different reactions of the other sellers when it lowers its prices.
 II. THE BUSINESS UNDER OLIGOPOLY
A. Profile of the Business
Brazillian Fuels was established on June 2012 in Brgy. Cayare, San Miguel, Leyte with a
capitalization of 2 million pesos by Prospero Q. Brazil an ex- mayor of the said town. The form
of business is Sole Proprietorship.
The business is a franchise of Petron Corporation which is the largest oil refining and
marketing company in the Philippines which offers retail of fuel, lubricants and Liquified
Petroleum Gas or LPG.
Brazillian Fuels is classified as Oligopoly in terms of specific nature. We all know that
Oligopoly is similar to monopoly except that there is no precise limit to the number of firms and
the actions of one firm significantly impact and influence others.
III. How do you compete in the industry?
A. PRICING
According to Mr. Prospero Brazil, the Petron Corporation prescribed the price of their products.
But he said the Petron Corporation consider the prices in the oil market plus operating expenses
attributable to the products.
B. PRODUCT
Since their business is a retail of fuel, lubricants and LPG, they make sure that the consumer
feels that they are receiving high quality products so that they will continue to come back and
keep the cycle going.
Fuels
1. Diesel
Petron Diesel Max is a high quality diesel fuel with an advanced multi-functional
detergent additive that cleans the engine.
Petron Turbo Diesel- is a technologically advanced fuel, enhanced with a C- booster
and combustion enhancer to provide smooth and premium performance.
2. Gasoline
Petron Super Xtra Gasoline- is the regular priced but quality gasoline of petron.
 Lubricants
1. Petron 2T Autolube
2. Petron 2T Enviro
3. Petron 2T Powerburn
4. Petron 2T Premium

LPG
1. Petron Gasul is a clean burning liquefied petroleum gas consisting of a mixture of
propane and butane gas and used as fuel for cooking, lighting and industrial
applications.

C. Quantity of Output
Purchase of Fuel and LPG is based on quantity sold in the preceding week, while for lubricants
it is based on sales of the previous month.

IV. PROFIT OPPORTUNITIES

V. PROBLEMS ENCOUNTERED
A. INTERNAL
Hard-headed personnel who does not follow the standards in dealing with customers.
B. EXTERNAL
Proliferation of illegal peddlers selling cheap gasoline and the non- implementation of
the law against them by the concerned government regulatory agency.

VI. CONCLUSION
Having a business that was built from a big capital is a gigantic feet in its own. Being an
oligopoly with only few sellers and identical products, competition is really tight. That one policy
of one seller can affect the other. But based on our interview they pride themselves in offering
quality services and good relationship with customers. They treat customers with respect and
sincerity. With that said, customers just come to them. Its not about how rare the quality of
products you have but how to bring customers to your business. The Brazillian Fuels is creating
a good image for their business and is now advancing to reach higher scales in the fuel industry.

VII. RECOMMENDATION
We strongly recommend these alternatives so that the business will gain more profit
opportunities and find solutions to every problem.
A. INTERNAL
Training or workshops the entity in hiring their workers must first conduct trainings or
workshops in how to have a good quality service because Brazillian Fuels have many
competitors that offer the same product. So if the entity will have a good image it can advance
to reach higher scales in the fuel industry.
B. EXTERNAL
Connecting with Government Agencies One of the problems now in this kind of business is
illegal peddlers that sell illegal fuel in a cheaper price. If the entity will raise its concern to a
specific government agency example DTI it will help them and other industries to tighten the
security in importing oil here in our country.
AN ECONOMIC PAPER ON MARKET STRUCTURE

OLIGOPOLY

Microeconomics Theory and Practice

Submitted by:
Jhullian Frederick Val Vergara
Roberto Owen Olfato
John Paul Rabara
Karen Pedrosa
 Fritz Jacosol

JAN 13, 2017