Oligopoly in US Cellphone Market

Running head: OLIGOPOLY IN US CELLPHONE MARKET
Oligopoly in US Cellphone Market
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1OLIGOPOLY IN US CELLPHONE MARKET
Table of Contents
Introduction......................................................................................................................................2
Characteristics of oligopoly market.................................................................................................2
Oligopoly characteristics of US cellphone service market..............................................................4
Collusion in the oligopoly...........................................................................................................4
Oligopolistic competitiveness......................................................................................................4
Price war......................................................................................................................................5
Network effects cellphone market...................................................................................................5
Longer-term impact of mergers in the market.................................................................................6
Effect on consumers’ price..........................................................................................................6
Competing strategy of other cellphone firms in the industry......................................................7
Arguments for mergers................................................................................................................8
Arguments against mergers.........................................................................................................9
Recommendation.......................................................................................................................10
Conclusion.....................................................................................................................................10
References list................................................................................................................................12

2OLIGOPOLY IN US CELLPHONE MARKET
Introduction
The term market in its simplest form refers to a place where buyers and sellers meet with
each other and engage in transaction of a particular commodity. Traditionally, market thus
indicates a place having small and big shops, stalls and different sellers selling a variety of
product. Economic definition of market however is different from traditional definition.
Economists consider market as an arrangement where sellers and buyers come in contact with
each other either directly or indirectly to exchange commodities. Subject to the number of buyers
and sellers and presence of competition market is of different types (Frank & Cartwright, 2013)
The four commonly is discussed market structure include perfectly competitive market,
monopoly, monopolistic competition and oligopoly. Focus of the paper is to discuss
characteristics of an oligopoly market in reference to cell phone market in US.
Oligopoly indicates a market form characterized as the dominance of small number of
firms for a given product. The characteristics of US cell phone market resembles the features of
an oligopoly market. There are four major service providers in the cell phone market namely
Verizon, AT & T, T-Mobile and Sprint. The strategic interaction among the forms results in
intense competition in the market.
Characteristics of oligopoly market
There are some distinct characteristics of oligopoly market that separate it from other
forms of market. Given below are some of characteristics of an oligopoly market
Interdependence
Interdependence among firms in taking various decision in the market is the foremost
feature of an oligopoly market (Moulin, 2014). For example, if one firm engage in advertising

3OLIGOPOLY IN US CELLPHONE MARKET
that can attract more customers, the rival firms in the industry follow the same to attract more
buyers.
Number of firms
Oligopoly market is characterized as being dominated by a relatively small number of
large sized firms. As a result, each firm has a considerable market share in the industry. This
leads to concentration in the market. Market power of oligopolistic firms though is less than
monopoly market but is definitely greater than monopolistic competition.
Nature of product
In an oligopoly market, firms sell either homogenous or differentiated product. Oligopoly
market with homogenous product is known as pure oligopoly while market with differentiated
product is known as differentiated oligopoly (Baumol & Blinder, 2015)
Barriers to entry
Market power of firms in the oligopoly market is retained through prevalence of high
entry barriers. Different forms of entry barriers in the market include ownership of a specific
resource, patents, high fixed cost to start up the business and different government restriction.
Competition
Presence of high competition is an important characteristics of oligopoly market. As there
are only a few dominating sellers in the market, any strategy of one firm affects the rivals. Firms
always keep a watch over the strategy of rivals to take a counter move (Nicholson & Snyder,
2014) This leads to high degree of competition in the market. Firms engage in both price and
non-price competition.