A market construction dominated by a little figure of big houses. selling either indistinguishable or differentiated merchandises. and important barriers to entry into the industry.

This is one of four basic market constructions. The other three are perfect competition. monopoly. and monopolistic competition.

The three most of import features of oligopoly are:

1. An industry dominated by a little figure of big houses

2. Firms sell either indistinguishable or differentiated merchandises

3. The industry has important barriers to entry.

Pricing

The members of an oligopoly alteration the nature of a free market. While they can’t dictate monetary value and handiness like a monopoly can. they frequently turn into friendly rivals. since it is in all the members’ involvement to keep a stable market and profitable monetary values.

With four or five big houses responsible for most of the end product of each industry. turning away of monetary value competition became about automatic. If one house were to take down its monetary values. it is likely that its rivals will make the same and all will endure lower net incomes. On the other manus. it is unsafe for any individual house to increase its monetary values since the others might keep their monetary values in order to derive market portion. The safest thing is to ne’er lower monetary values and merely raise monetary values when there is abundant grounds that the other houses will besides raise monetary values. The largest or lowest-cost or most aggressive house will frequently emerge as the monetary value leader. When concern conditions permit. the monetary value leader will raise monetary values with the outlook that the others will follow. The pattern of monetary value leading prevails in many industries:

Competition does non be in any signifier. Oligopolies that follow a monetary value leader do non prosecute in monetary value competition. but they still contest for market portion with a assortment of signifiers of non-price competition. Pepsi and Coke each spend one million millions on Television ads designed to lure the consumer to exchange Cola trade names.

Scale OF OPERATION

Oligopolistic houses that operate on a national or planetary graduated table are besides immense in another sense – they are merely obviously large. Many have several hundred thousand employees and multi-billions of dollars in assets. Size is itself a beginning of power.

Entry Barriers

Oligopolies can go unstable when new houses attempt to derive entry. Of class the high cost of geting works and equipment Acts of the Apostless as a barrier to entry. It is besides dearly-won to come in an industry dominated by a little figure of known trade names. Small houses already in the industry present a particular job. Some might seek to turn beyond their established niches. The big house will frequently merely buy the energetic little house. Or the big house or houses may trust on its established relationships with clients or providers to restrict the activities of smaller houses.

The new oligopoly is made up of transnational corporations that have chosen specific merchandise or service classs to rule. In each class. over clip. merely two to four major participants prosper. Get downing a new company in that market section is hard. and the few that do win are frequently gobbled up or run out of concern by the oligopolies.

MANIPULATING Demand

The big house is frequently in a place to make a demand for its ain merchandise through advertisement. While this sometimes leads to existent merchandise betterment. it can besides take to the production of images instead than genuinely different merchandises.

A survey of the tactics of trade name names points out that good trade name names are most of import for the type of merchandises that are “relatively uniform in footings of merchandise specifications or public presentation and where consumers are comparatively satisfied with bing trade names. ” One decision of the survey is that “…on the whole. stigmatization is of import merely where the character of the merchandise is non. ”

Few multinationals aspire to be monopolies. Monopolies attract authorities ordinance and consumer choler ( merely inquire Microsoft ) . Small oligopolies ( such as Coke. Pepsi ) make plentifulness of money and avoid the changeless attending of the regulators.

Oligopoly. so. is a via media – a societal version to powerful technological tendencies. While the regulations of perfect competition should both assure that monetary values reflect the true costs of production and that houses continue to better their merchandises and production procedures. runing under these regulations leads to the type of monetary value competition that continually threatens the value of huge retentions of expensive and specialised production installations. So we have accepted a set of economic regulations that limit monetary value competition but still seem to ensue in competition over merchandise and production procedure development. Technology forced houses to go bigger. yet that really bigness put them at such hazard that they had to go even bigger in order to command monetary values.

OLIGOPOLY IN BEVERAGE INDUSTRY

In the Indian context. the soft drink market though it may look to be duopoly is basically an oligopoly. Baring the two major Cola giants Coke and Pepsi. every metropolis besides has local rivals and there is a big unorganised flavoured H2O market. Furthermore. bottled H2O is besides a rival to the Cola trade names and in this class neither of the two Cola companies are market leaders. However. every bit far as the Cola flavored fizzing drinks are concerned there are merely two trade names. Coke and Pepsi. Under such a state of affairs economic experts would state there would be intense competition. Unless. the two parties collaborate with each other. which is surely non the instance in the Cola market worldwide or in India.

This implies that the primary conflict is for market portion and hence strength of competition is high. Each and every move by a participant attracts revenge. 3 things of import to be successful in this class ( oligopoly of Cola ) are:

1. High Awareness: This has two components-one is media awareness the other relates to indicate of ingestion. The first one truly means big advertisement spends. and simple messages repeated umteen times. Eg. lways Coca-Cola? or forty-nine mange more? Simple and memorable. The category leader dictates the consciousness degree. Once that has been established. the figure two participant demands to happen a lever. which will guarantee a place near to the leader. with less money spent.

2. Easy AVAILABILITY: Sellers in this class demand to happen advanced ways of guaranting handiness of their trade name at different ingestion occasions and clip.

3. High Emotion: The cardinal distinction in this class is emotion. Brand personality can do or interrupt the trade names in this class.

In an oligopoly. it is foolish to cut monetary value unless one of the two parties have a much lower cost base. That. excessively. is non the instance in India. Both trade names. Coke and Pepsi. invest to a great extent in advertisement and in distribution through their franchise and their ain systems. However. a great trade of attending is paid by both companies to be. peculiarly in the development of a tightly effectual supply concatenation system in which economic systems are squeezed out and. wherever possible both operating expenses and working capital are controlled.

As a consequence it is highly hard to cut down monetary values. Indeed. it is counter-productive. as when monetary values are reduced in a peculiar country by one of the Cola trade names. the 2nd must follow. There have been some illustrations of monetary value decrease. but this is by and large the local franchise or the gross revenues direction of a peculiar country cut downing the monetary value. This is. nevertheless. by and large non the instance and monetary values have merely been reduced in the recent yesteryear if there has been a decrease in Government revenue enhancements. either at the Central or State degree.

However. there has been some major enterprise on the monetary value forepart. The first took topographic point some old ages ago when the trade name Coca-Cola came back to India. At that clip Colas were sold in 200 milliliter bottles. Coca-Cola launched itself in all major metropoliss in the 300 milliliter size at the same monetary value as Pepsi. which was so in a 200 milliliter bottle.

Pepsi was. nevertheless. prepared for Coca-Cola to establish in the larger bottle. which became the criterion inmost parts of the state. doing the monetary value a para issue between the two trade names.

A few old ages ago. Pepsi launched itself in one liter and 1. 5 litre non-returnable PET bottles at a price reduction in comparing to a 300 milliliter returnable glass bottle. the traditional packaging in this merchandise class. This resulted in a important addition in the deepness of ingestion ; amongst the loyal consumers in the larger towns.

Coke followed Pepsi in each of the above moves in order to cut down the cost per glass to the consumer.

The soft drink big leagues besides pioneered a 500 ml non-returnable PET bottle. which was advertised about wholly on the cost of the consumer per 100 milliliter of Cola. The great advantage of PET bottle is that they non merely promote high degree of consumer but increased place ingestion which was little compared to out of place ingestion.

The latest move to cut down monetary value to the consumer was followed by Pepsi in April. 2003 when it reduced the monetary value of its 300 milliliter returnable glass bottle section from Rs. 8 to Rs. 6 and priced 200 ml bottle at Rs. 5. However. Coke still priced it 300 ml bottle at Rs. 8. Coke wanted to force the 200 milliliter “Chota Coke” battalion in summer since they wanted to derive volumes so they priced 200 milliliter at Rs 5/-“ .

The fresh monetary value war follows an earlier onslaught when both Pepsi and Coke reduced monetary values by about 20 % across the board merely before the Union Budget for 2003-04 provided them with excise responsibility alleviation.

In the recent yesteryear both the companies took aggressive stairss and signed on 1000s of new retail merchants in a thrust into rural India that has pushed up gross revenues steeply.

Coca-Cola has made its drinks available in 40. 000 extra small towns in the last three old ages. As a consequence. the rural countries now contribute 35 per cent of the company’s gross revenues compared with 25 per cent in 2000. Gross saless volume jumped over 125 % in some rural countries.

In order to serve widespread markets better. Coca-Cola has doubled the figure of iceboxs in the market to 500. 000 and added 5. 000 new cars and light commercial vehicles to its fleet in the last one twelvemonth. Pepsi besides has besides doubled distributers. chilling capacity and even the figure of vehicles in rural countries.

Therefore. the part of rural countries to entire gross revenues has climbed from below 10 per cent to 10-15 per cent for Pepsi in the last twosome of old ages.

Pepsi has added more than 200 people to drive rural activation programmes and guarantee improved coverage and market incursion. In add-on. a new “hub and spoke” theoretical account has been put in topographic point to drive the rural enlargement program.

Both companies say there is untapped potency in the rural countries that will fuel speedy growing in the coming old ages. e the rural enlargement program.

In a competitory state of affairs such as the 1 that exists in the Cola market. the of import thing is non the monetary value ; it is the value that the consumer gets. And that ever increases in proportion to the fierceness of the conflict in the market place.