Strategic Behavior In An Oligopolistic Market
Within the Oligopolistic industry interdependent behavior tends to happen. This happens when a company does something along the lines of changing the price of the phone they are selling. This will lead to other companies doing the same thing. To some economists, interdependence leads to kinks in the demand curve facing individual oligopolists, the presence of a kink leads to less emphasis on price changes. What is left is the firm trying to distinguish itself from its opponents using a numerous amount of different strategies; such as importance on production effectiveness; new product innovation, research and development; and a whole spectrum of marketing devices, such as advertising, credit, sales promotion, personal selling, packaging, and services. Oligopolistic firm's strategic behavior involves two consequences. The first is that profit-maximizing decisions of oligopolistic firms are not based on clearly defined rules, but on how it believes other firms will react to these actions. The second is that the results of these decisions will depend on how other companies react response to these actions. When T-mobile and Sprint decided to merge they announced this as a way to lower costs and give benefits to its customers and smaller businesses. Looking at past companies making these promises and not keeping them most people knew better than to expect these changes from this merger. Looking at the market every time T-mobile would cut its prices, a price cut from sprint would follow soon after.
This merger has now brought about concerns about lack of incentives to continue to cut prices and come out with new service packages. These companies say they will still manage to stay profitable however by expanding coverage across the country and increasing speed and performance.
Combining their coverage could also possibly lead to a faster roll out of 5G internet. With the introduction of 5G internet being the goal for most of these companies, this now means that all providers would be in competition to gain market share in addition to providing more added value.
AT&T and Verizon will feel the opposition since this merged company will be playing on the same level as them. However, after this merge there will be no competition on the level that T-mobile and Sprint once were. When one firm becomes more successful than the other by gaining market share it is likely that the other firms will copy the pattern started by the leader of the moment. The assumption here, as it relates to interdependence is that the sales of one firm depends on the sales efforts of the other firms. As a result of this assumption customers could expect a slight drop in prices from AT&T and Verizon but slightly higher prices from the newly merged T-mobile and Sprint. Although prices would most likely rise, their rates would still be lower than that of AT&T and Verizon.
In an Oligopolistic market, entry is difficult due to high costs, to large firms and, unlike other market structures, the interdependence of oligopolistic firms is significant. There is an understood call for coordination of price without conspiracy, communicating or committing other visible acts. This phenomenon has been called, conscious parallelism, and for the special case of oligopoly “oligopolistic interdependence”. Although their advertising stresses different features such as unlimited streaming and messaging and high speed downloading and better coverage, since sellers are only a few large companies, their products are homogeneous. Oligopolistic industries have a place in our economic market places, as they serve a purpose that would not be achieved otherwise.