Preferred Market Structure, Research Paper Example

In an ideal world, I would prefer to be an oil producer and operate in an oligopoly. I like the oligopoly structure because it has several advantages relative to other market structures. It doesn’t draw as much scrutiny as monopoly which is always at a threat of being investigated or regulated by the government or even broken into multiple parts if it becomes too big. Oligopoly firms have some pricing power like monopolistic competition and do achieve differentiation but unlike monopolistic competition, oligopolistic firms also enjoy economies of scale and relatively high barriers to entry. As an oil producer, my industry will have high artificial barriers due to high capital requirements and the risks involved in drilling activities and operations in politically unstable and major oil-producing countries.

I also like oil because it is a necessity for most people and companies, especially in developed countries with high automobile ownership rates and not surprisingly has low price elasticity of demand. Even if prices go up, some consumers may reduce demand but the proportional reduction in demand is usually less than the proportional rise in prices. Another reason why oil has low price elasticity of demand is because there are few or no reliable substitutes and alternative energy technologies are still in infancy and economically uncompetitive. This is why oil companies seem to make record profits even during recessions when most industries face difficult economic climate. Another reason I like oligopolistic firms is that they each have a huge market share and high brand recognition, thus, do not need to spend much on marketing activities.