why are oligopolies so concerned about maintaining market share?
Please expain it.
- sensekonomikxLv 71 decade agoFavorite Answer
Maintaing a market share is important for an oligopolist firm for three reasons:
a) a non- declining market share is an indicator that the firm is able to hold on to its customer loyalty and brand image in the face of competition from rival oligopolist. On the other hand, a falling market share points to erosion in customer loyalty and brand image built up at huge costs and a fall in market share may be seen as the firm's weakness among remaining loyal customers, thus causing a snowbakll effect of declinig market share in the face of publicity and promotion campaign. The overall market size may decline, but an oligopist cannot afford to let its market share fall.
b. a Stable and minimum market share enables an oligopolist firm to spread its fixed costs over a given market size it is able to capture: any fall in such share would imply lower profits and lower return of investments made in building loyal customer base and brand.
c. A falling market shares for oligopolists in a market means success of marketing strategies of new entrants and loss of pricing power. Both are dangerous signals for an oligopolist firm for future profitability and level of profits.
- 1 decade ago
So an oligopoly is a situation where there a few large suppliers which dominate a market. This results in a high degree of market concentration ie. where a large % of the market is taken by the few leading firms.
By maintaining market share, it allows a firm in the oligopoly to take part in the profits. For example, if the market share of one firm in an oligopoly decreased, this would result in an increase in the market share of the other remaining firms. Hence, this would lead to a decrease in profits for the firm with a now lower market share and increase in profits for the remaining firms.