Nescafe Oligopoly



PG 2009-2011
The type of market that Nestle would have to operate on would be an oligopoly market. In reality, this the type of market which exists, having a high degree of market concentration. This indicates that a huge percentage of the Oligopoly market is occupied by the leading commercial firms of a country (AMUL, BRITANIA etc.). These firms require strategic planning to consider the reactions of other participants existing in the market. This is precisely why an oligopolistic market is subject to greater risk of connivances.
In order to be a successful oligopolistic firm in the long run managers must be aware of a number of complex economic interactions   such as;   producer interdependence, the prisoner’s dilemma, price leadership, non-price adjustments, and the correct use of barriers to entry. These models and their factors need to be taken into account when making decisions for the firm.
One of the defining features of an oligopolistic market is interdependence.   Oligopoly involves few producers, which means more than one producer as it is in pure monopoly but not so many as in monopolistic competitions or pure competition where it is difficult to follow rival firms’ actions.   Therefore, due to the small number of producers in an oligopolistic market, the price and output solutions are interdependent.   The firm must be aware of its competitors’ movements and through applications of game theory determine the way in best to maximize their profits.
The prisoner’s dilemma is a particularly important model for the oligopolistic market. It analyzes the competitors’ possible actions, and how they will affect the gains or losses from any move on behalf of the firm. Game theory is a mathematical approach to strategic behavior.   Game theory is used in analyzing the actions of the competitors and the pricing and output decisions of oligopoly firms, it helps determine whether firms cooperate or...