Oligopoly Market Price Elasticity of Demand Harvard Case Solution & Analysis

Abstract:

            The case is about price elasticity of demand in oligopoly market due to sudden change in its price. In this case there are 6 more sections that are briefly described below.

            The first section is about introduction in which the paper covers the introduction of oligopoly market along with price elasticity of demand. In this part, it is covered that how does price changes affect in oligopoly market competition, also with pricing strategies in oligopoly market.

            The second portion is the most important section that is literature review. In this section, this paper covers every aspect of price elasticity of demand, oligopoly market and reasons behind sudden changes articles review. This part has covered many of aspects and those are helpful reviews.

            The third part of the paper is theoretical analysis in that all theories related to this paper like kinked demand curve, Nash equilibrium and price elasticity demand movement on demand curve due to price changes are analyzed in detail to give suitable results of this paper.

            The second last part of this report is about empirical analysis that covers any impacts due to change in prices on firm and consumers as well as market itself.

            In the last part, it contains conclusion in that only conclusive points are covered for better understanding of paper.

Introduction:

Oligopoly market:

            Oligopoly is a market where there is little number of firms that are producing differentiated or homo genous product to large number of buyers of market and mostly oligopoly market is commodities market.(Hartley, 2008).

            As there are a limited number of firms, therefore market is very concentrated and every firm has its own independence importance in the market. The firms have decision power in hands and they use to take decisions regarding market by combination to get good profits and revenue with them on pricing policy.

            Oligopoly market has a limited number of buyers that competes each other for market share as every firm has efficiency to give competition to other competing firms on market share. Each firm competes to become a market leader. The power of each firm is dependent upon it size and structure along with market share.

            The differentiation strategies that are used in monopolistic firms are their advertisement strategies, branding and their unique quality. There are certain theories related to oligopoly market that are kinked demand curve, Nash equilibrium and Bertrand Model which further define situations of oligopoly market.

Price strategies in oligopoly market:

            In oligopoly market, price is usually fixed by the monopolistic firm that contract between each other for price and quantity output as not to compete with each other. If the firms do not compete with each other then there is no price war and market prices are usually stable in oligopoly market. This pricing strategy in oligopoly market ultimately benefits firms that are getting profit due to lack of competition in the market(Fisher, 2011).

            However, it is not necessary that every firm agrees on that price, therefore some of the firms independently fix their own price in accordance to their market demand and marginal cost curve strategy for level of output. In the above case scenario, the competition comes to its place in market (Fisher, 2011).

Oligopoly Market Price Elasticity of Demand Case Solution

Price Elasticity of demand:

            Price elasticity of demand measures the change in demand of a good in response to change in price of that good(Price elasticity of Demand).

            If the response of demand due to change is price is very little then it is said that the demand is price inelastic, for example necessities like cooking oil. The response of demand due to change is price is as much as change in price or above then it is said that demand is elastic, for example luxury goods like cars (Price elasticity of Demand).

            Price elasticity of demand can be measured as percentage change in quantity demanded divided by percentage change in its price. Demand is said to be elastic if the price elasticity of demand is above one, it is price inelastic if it is less than one and it is unit elastic if result is equal to or near one.

            Unit elastic demand is said to be perfectly inelastic and perfectly elastic because the response in demand change is equal to the change in price of a good (Price elasticity of Demand).

Literature Review:

            Oligopoly is a market where small numbers of dependent firms are competing with each other to increase individual market share. The oligopoly market is a market that is combination of monopoly and monopolistic competition as it has features of both markets.....................

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