Companies Essay Example | Topics and Well Written Essays - 500 words

Companies - Essay Example Thus non-price competition prevails in the market and it is up to a particular firm to convince consumers that its product is superior. Only then can it charge a higher price vis-Ã  -vis rivals. Given a large number of sellers, collusion is practically impossible In the event of an increase in demand, leading to an increase in price, the firms in the industry may earn higher profits in the short run. However, over time, the existing firms in the market will increase their production capacity or new firms will enter the industry to take advantage of the higher price. Either way, the supply demand mismatch would vanish and the firms will earn normal profit only. The assumption of symmetry in monopolistic competition, which states that when a new firm enters the industry it draws customers equally from all firms, will lead to negligible change in the CR of the industry. The aforesaid discussion suggests that if J’s Assistant Living is to start operations, the company will have to offer a differentiated product. The company will not be able to compete on the price plank and will earn normal profits in the long run. In case J’s Assistant Living does not succeed, it will be able to exit the industry easily. The Concentration Ratio (CR) of 80 percent in industry B with 20 firms signifies that there is ‘high concentration’ in the industry. The industry is oligopoly as the few largest firms account for 80 percent of the market share. In an oligopoly, the market dominated by a relatively small number of large firms. These firms have considerable market power and may either sell standardized products or differentiated products. Each firm realizes that any move that it makes would be taken note of by competitors. As such, the decisions that a firm takes is strategic in nature as it invariably elicits a response from the rivals. The main characteristics of this industry type include barriers to entry and