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 eco401 2nd gdb solution

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PostSubject: eco401 2nd gdb solution   Fri Jun 25, 2010 8:52 pm

“A car manufacturer may regard his business as highly competitive
because he is keenly aware of his rivalry with the other car
manufacturers in the market when making pricing and investment
decisions. Each car manufacturer undertakes dynamic advertising
campaigns seeking to persuade prospective buyers of the superior quality
and better style of his cars and reacts very quickly to claims of
superiority by his rivals.”
Which type of market structure is this? Just mention the name of that
market structure.
Answer:
To me its oligopoly, and i will support my answer with the following
points:
First: The products are differentiatable as the compitition between
firms is base on standard that is all the products are not same, they
vary in their quality.
Second: Oligoplistic firms depends on teh action, reaction of other
firms in the industry as in the case of given example is also same.
Third: As the price is mentioned that the manufacturer of car in the
given case is taking care of other firms meaning that price is not one,
that is not single equiblibrium. which is also a supporting hint for
oligopoly,
Finally Fourth: It seems that there are no new entrants, so that,s why
manufacturere just has to take
care of other existing firms which also seem limited.


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