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Since the oligopoly market is characterized by interdependence among players, any first-mover action must be well measured. Since the plan is low-risk, Company A issued an advance press release on the price rise. It assists the organization in determining the ability of other players to change their rates in response to the first mover's declared intention. If the other players do not follow suit within a fair period, company A has the option to reverse the price adjustment. However, if the plan is successful and other competitors follow suit, Company A has a better chance of achieving higher returns in the future due to the first-mover advantage as the price leader. However, the strategy is not common in real world oligopoly firms but rather prefer to use non-price strategies to increase their market share and competitiveness. Non-price strategies help to avoid destructive price wars that may end up distorting the market (Vives & Chioveanu 120).
Through computers adverts on weekly magazines, I was able to make an informed decision on the best computer model for office use. I am neither an expert nor keen on technology issues, but the advert helped me know of the various computer specifications. In my opinion, advertising is very crucial in informing a buyers’ decision.
Government regulation of prices that the natural monopolists charge is the ideal way of dealing with a natural monopoly. The government will set a price where the monopoly can cover its average costs while earning a normal profit preventing it from charging higher prices making abnormal profits. In the case of the costs increases, the government issues subsidies to lower the price charged. The strategy maximizes the public welfare which is the main objective of regulation (Cemil & Paul 363).
Cemil, Ozbugday, F & Paul H. L. NILLESEN. "Efficiency and Prices of Regulation-Exempt Consumer-Owned Natural Monopolies: A First Look at Electricity Distributors in New Zealand." Annals of Public & Cooperative Economics, vol. 84, no. 4, Dec. 2013, pp. 361-381. EBSCOhost, doi:10.1111/apce.12019.
Vives, Xavier & Chioveanu, Ioana. Strategic Pricing in Oligopoly Markets. Bellaterra : Universitat Autònoma de Barcelona, 2005. Internet Source.
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