Oligopoly Markets

4 April 2015
A study on oligopoly markets with a focus on the United States beer industry.

This paper analyzes the American beer industry market, which is an excellent microeconomic model of an oligopoly. The author writes that the beer industry is a fully mature market, with Anheuser-Busch firmly entrenched as the market leader and is difficult for it to be unseated. The company’s status offers it many benefits over rival competition, including substantial production economies of scale advantages. The paper also describes the two kinds of oligopolies pure oligopoly and differentiated oligopoly.
The U.S. beer industry frequently is cited as an example of a differentiated oligopoly. This is a market almost completely dominated by a few very large firms, and particularly by the market elephant, Anheuser-Busch. It is interesting to look at the U.S. beer industry in terms of the economic model that describes oligopolistic behavior. Comparing the model to the real-world behavior of the beer industry, one find that in the majority of instances, the microeconomic model does a good job of describing behavior within the industry.
McConnell gives a good definition of an oligopoly that can serve as a jumping off point to an examination of the U.S. beer industry. Oligopoly exists when a few large firms, producing a homogeneous or differentiated product, dominate a market. ‘Fewness’ means that the firms are mutually interdependent in that each must consider the possible reactions of its rivals to price, advertising, and product development decisions. (McConnell, P. 220)

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