Explain how market structures determine the pricing and output decisions of businesses?
How market structures determine the pricing and output decisions of Ollo:
Firms’ pricing and output decisions depend onbarriers to entry and the behaviour of competitors.The actions of one’s competitors can easily influence the behaviour of afirm.This is proper for an oligopolistic industry whereby firms display mutual interdependence.Ollo is an oligopolistic business with Banglalion & Qubee as their major competitors.If Ollo sets a price higher than that charged by others, the company can expect to lose a lotof sales.Moreover, there are some barriers of entry Ollo must consider before expanding theirbusiness.Barriers to entry are obstacles that deter new firms from entering a market to compete withthe existing firms. They give firms a degree of market power such that decisions can bemade by existing firms without risking their market share.The most common types of barriers to entry are as follows:
1. Availability of key resources.
2. Government restrictions & legal barriers.
3. Exclusive rights & patents.
4. Initial capital cost.
We must keep in mind that, the degree of barriers of entry can determine firms ‘pricing decisions. The wireless industry requires a big sum of capital and it uses mobile data network as its main resource.Ollo had to put down a lot of money just to enter this market still they must consider thefact that their competitor Banglalion has already covered 30 major districts of the country with their service. Considering this fact Ollo now is preparing to build network coverage in any one division among Shyllet, Chittagong, Barisal and Rangpur.This will give them a competitive advantage over their other close competitor Qubee.More importantly, if Ollo decide to expand their service in Rangpur it will make them a monopolist in that locality because no other wireless company is operating there yet. Lastly, when considering the marketing aspects...