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Economics explained


Market structures

Oligopoly - Price wars or non-price competition?

Oligopoly - Price wars or non-price competition?

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Price wars

Oligopolists are price makers but one of the dangers of using this weapon is that the firm can get drawn into a price war.

An oligopolist would only start a price war if its costs of production were significantly lower than those of its rivals. A price war may be the natural outcome of events, such as overcapacity in the industry or the entry of new firms.

It could also be a defensive tactic where an oligopoly is losing market share to its rivals.

Non-price competition

Although they each have market power in the form of influence over the prices they charge, the uncertainty surrounding the outcome of competitive tactics means that firms may prefer non-price competition.

The firm will therefore be better off concentrating on non-price competition to increase revenue. This may include the following:

marketing competition, including obtaining exclusive outlets such as tied public houses and petrol stations through which breweries and oil companies sell their products

the use of persuasive advertising, product differentiation, brand imaging, packaging, fashion, style and design

quality competition, including the provision of point-of-sale service and after-sale service

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