King of the Hill essay
In the outback town of Arlen, Texas, it is demonstrated how the power of companies within an industry economically benefit by controlling a specific market. In King of the Hill, AA-1 Propane, Strickland Propane, Pine Creek Propane and Thatherton Fuels join together and illegally use their market power to arbitrarily increase their prices to create a large profit. Since all four companies join together, they control the industry by monopolizing through collusion. Their unification changes the market drastically and creates an economic imbalance.
When companies are at a loss and cannot cover their variable costs, then they are below shut down point and will therefore shut down due to inefficiency. To increase profit, companies are willing to use money to make money, which is known as branding. They show this in King of the Hill when the owner of Strickland Propane pays for the American Chopper Show to advertise their propane. Essentially, they’re paying for marketing to give their products publicity.
Since the “Heimlich Four” decided to join together, they set uniform prices and therefore get to control supply and demand. Since people have no other choice from who to buy in Arlen, they are forced to buy from the Heimlich Four. Even worse, they collect the profits and split them into four profits. This price fixing allows a mutual benefit for all traders. This practice is found in an oligopoly. The decisions of each firm are influenced by the decision of others.
By joining together, these companies set their prices higher than their marginal cost, which allowed them to maximize their profit. Since they owned most of the market together, smaller companies were then forced to comply with these higher prices. Other companies had marginal costs that were higher than the set price; therefore they were at a loss.
When companies are at a loss and cannot cover their variable costs, they become below the shut down point...