This essay focuses on the tobacco trade with respect to its oligopolistic market construction. The essential traits of the oligopoly are mentioned and adopted by the identification of the tobacco trade as a good oligopoly. The varied market forces and the ensuing threats related to the market construction are then elaborated upon. Oligopoly is a market construction the place there are just a few sellers for a product or a service.
It’s the most prevalent type of market group by which the few sellers would possibly promote homogeneous or differentiated merchandise relying on the kind of the trade. Among the merchandise akin to metal are homogeneous whereas another merchandise like cigarettes are part of the differentiated product line within the oligopolistic trade. The motion of every agency within the trade impacts the opposite companies. The Sweezy’s kinked demand curve mannequin of oligopoly explains the asymmetry within the response of different companies to at least one agency’s worth change (Peterson & Lewis, 1999).
For the reason that worth competitors within the oligopoly market construction will be ruinous, the totally different companies compete with one another on the idea of non-price competitors elements akin to product differentiation, promoting and different advertising methods. The interdependence and the rivalry amongst the companies type essentially the most distinguishing attribute of the oligopoly market construction. The kind of product produced could have an effect on the strategic habits of the Oligopolists. The cooperative Oligopolists comply with the sample adopted by the rival companies not like the non-cooperative Oligopolists.
Relying on the kind of oligopoly and the kind of product, every agency tries to make an influence within the present market construction and affect the rival companies. The tobacco trade follows the mannequin of the cooperative oligopolistic trade with the companies promoting differentiated merchandise. The tobacco trade within the US is a good oligopoly. The market share of the cigarette trade is shared amongst 4 prime corporations. The market is dominated by 4 key producers often known as Massive Tobacco.
In accordance to a knowledge concerning the market share of the US cigarettes in 2003, the highest two companies are Philip Morris and R. J. Reynolds. They personal 72 % of the market share whereas the subsequent two corporations Lorillard and British American Tobacco (Brown and Williamson) account for the subsequent 18 %. Other than the main cigarette producers different corporations akin to DIMON and Common Company are concerned in promoting different tobacco associated accouterments. Altadis manufactures 50% of the cigars within the US. With the specter of legislation fits and the rising limitations on the advertising channels, the trade retains a good verify on the entry of latest entrants, thus sustaining the oligopolistic scenario of the trade.