Micro Economics

Running head : BIGGEST FISH The Biggest Fish is the Fittest Fish : outline of Mergers and Oligopoly-FormingAuthorThe Biggest Fish is the Fittest FishImagine an under-the-sea scenario where orotund fishes dwell with grim ones . Since these big fishes argon big and no one is stopping them , their presence could do either or even both of these two to the small ones : it could eat the small fishes and use them to grow much outstanding , and /or , the big fishes could consume most of the food that is sh ared out by the whole niche , starving the little fishes to deathThis scenario epitomizes what happens in an industry run by an oligopoly , a market social system characterized by few sellers that could co croak or not with all(prenominal) another(prenominal) (www .bookrags .com . The big steadfastlys , to further their benefit , merge with other firms to gain influence in the market operations and in the process cut off efforts from up and coming competitors . This is how Dreazen , Ip , and Kulish (2001 ) view the oligopoly-forming in several of the US industries . They argue that an oligopoly allows earning of big profits by big firms at the expense of the consumers and economic progress in the sense that the big firms are subject to set monetary values that are higher than their comprises , cut-off competitors , and along with the lessening in the number of firms reduction in innovationHow valid is this argumentExamining the count , it is found that with two exemplars of oligopoly namely the Bertrand and Stackelberg models , this argument had found its grounded proofIn the Bertrand model , it is assumed that firms set their expenses . Under this arrangement , the firms are uniform to monopolists in the sense that they are able to dictate the price of their output (Nicholson , 1992 This indeed leads to detrimental results for the consumers since monopolists or firms that behave as such will set their price at a point higher than the equated marginal revenue and marginal cost .

Thus not only will the consumers face a much higher price , they are also supplied with lesser quantity of output (Krugman and Obstfeld , 2000Steckelberg model s scenario is that of a firm which serves as a leader (usually a price leader , whose actions are imitated by other firms (Nicholson , 1992 . A single firm could step up as the leader due to historical precedence , size , reputation , innovation , information , etc (www .enotes .com . With this arrangement , high price setting is highly probable , plus other ` equate firms whitethorn drop out due to inability to operate under the price set by the leader , cutting-off what limited competition they present . Competition is also harmed since the big firms may influence the sources of capital and redirect them to suit the large firm s benefit . This is largely evidenced by the unprecedented back-out of investors in up starting companies that are seen as challenge to the large firms in oligopoly-run industries in the US such as telecommunication , textbooks , job recruitment websites (Dreazen , Ip Kulish , 2001...If you want to get a full essay, order it on our website: Ordercustompaper.com

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