Essay Plans

What role do small firms play in the sphere of oligopolistic market activity?

SYNOPSIS:

POINTS:

  1. Define terms
    • small firm (see Bolton)
    • oligopolistic market activity

  2. An oligopolistic market means that the majority of the market is in the hands of a few large firms - the remainder may be in the hands of many small firms. These small firms may ultimately and collectively pose a threat to the larger firms - in particular if they follow different competitive strategies (eg price cutting) to the large firms.

  3. The oligopolist has several options - he may try and force the small business out of action by using the economies of scale to price the firms out of the market. If market power is used to pressurise distributors then the 1980 Competition Act (structure, conduct and performance) may be implemented PLUS the demise of the small shop may be regretted by the public - thus less of goodwill.

  4. If the small firm monopolises a small segment of the market it may be more difficult for the oligopolist to deal with it again as in the case of a small shop offering Halah meat to Muslims.

  5. If the small firm is not independent it may simply be the 'UK arm' of a multinational then the resources of the multinational will enable it to fight off competition (hence the importance in defining small firm in the opening paragraph). Equally by voluntary agreements small firms (eg. Mace) may group together to achieve economies of scale in bulk buying.

  6. Thus it may be difficult for oligopolist to fight off small firms - one way of minimising the damage would be to discourage entry in the first place. This could be done by a reduction of profits (abandonment of MC = MR), emphasising innovation/product design in their internal budgeted strategy, identifying the key segments of the market and dominating them, issuing complementary products that only fit their original products (eg. in the case of a car and spare parts).

  7. In conclusion therefore, the small firm may constrain the oligopolists performance, it may also improve it (as a means to keep the small firm out) or it may have no reaction as the oligopolist may be happy with the majority share of the market.
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