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 kind of market group by which the few sellers may promote homogeneous or differentiated merchandise relying on the kind of the trade. Some of the merchandise reminiscent of metal are homogeneous whereas another merchandise like cigarettes are an element of the differentiated product line within the oligopolistic trade. The motion of every agency within the trade impacts the opposite corporations. The Sweezy’s kinked demand curve mannequin of oligopoly explains the asymmetry within the response of different corporations to 1 agency’s value change (Peterson & Lewis, 1999).
For the reason that value competitors within the oligopoly market construction may be ruinous, the totally different corporations compete with one another on the idea of non-price competitors elements reminiscent of product differentiation, promoting and different advertising and marketing methods. The interdependence and the rivalry amongst the corporations kind probably the most distinguishing attribute of the oligopoly market construction. The sort of product produced might have an effect on the strategic habits of the Oligopolists. The cooperative Oligopolists observe the sample adopted by the rival corporations not like the non-cooperative Oligopolists.
Relying on the kind of oligopoly and the kind of product, every agency tries to make an impression within the current market construction and impact the rival corporations. The tobacco trade follows the mannequin of the cooperative oligopolistic trade with the corporations promoting differentiated merchandise. The tobacco trade within the US is a good oligopoly. The market share of the cigarette trade is shared amongst 4 high corporations. The market is dominated by 4 key producers referred to as Massive Tobacco.
In accordance to an information relating to the market share of the US cigarettes in 2003, the highest two corporations are Philip Morris and R. J. Reynolds. They personal 72 % of the market share whereas the following two corporations Lorillard and British American Tobacco (Brown and Williamson) account for the following 18 %. Aside from the main cigarette producers different corporations reminiscent of DIMON and Common Company are concerned in promoting different tobacco associated accouterments. Altadis manufactures 50% of the cigars within the US. With the risk of legislation fits and the rising limitations on the advertising and marketing channels, the trade retains a good verify on the entry of new entrants, thus sustaining the oligopolistic state of affairs of the trade.
