If you look closely at the products on the shelves of the breakfast foods aisle in your grocery store, you will be surprised to find out that most popular breakfast cereals and cornflakes that some one wouldn’t think were associated with each other like Cinnamon Toast Crunch, Cheerios, Lucky Charms , and countless others are products of the same seller. If you start counting how many firms that are running the whole aisle, you probably won’t come up with more than five different sellers. Those sellers are considered to be market oligopolies. Oligopolies are a type of market structures in which most of the industry is dominated by a few number of sellers and competitors that are marketing very similar but differentiated products. This type of market is shown in the airline industry, car industry, Pharmaceuticals and most …show more content…
For example, if General Mills decides to lowerprices of their products, they have to expect that the competition will also lower their prices further and thus become part of a price war that eventually harm them all.
Another characteristic of an oligopoly is high barriers of entry to the market that restrict new firms to enter the industry, this is especially true when the major firms in the industry control more than half of the market. There’s usually a stability in price within oligopolies, so they are non competitive with their prices.
All four of the cereal-producing firms use similar production strategies and their price of production is also close to each other since they all need the common raw materials of grains, corn, wheat, and flavorings. They also have the same packaging techniques a so the plastic and boxing materials are also affecting them all