Tanya and Tanmay Want to Buy: Sticky Sellers Seldom Bargain
Buyers and Sellers are natural opponents given their antipodal interests – the former will buy more when the price falls and the latter is keen to sell more when the price is high. A market is the meeting point of these antipodal participants. Are buyers and sellers equally poised in the market or is there a power play in the market, which consequently distinguishes one market from another? Within the group of sellers itself, is there cut-throat rivalry or can it be possible that sellers are accommodative of mutual interests? The protagonists – Tanmay and Tanya, a pair of keenly observant teenage twins, are intrigued by the behavior of fruit sellers in the neighborhood market. It gets them thinking about universal parallels existing across the globe, such as accounting firms, oil exporting firms, media houses and others. Does cooperation among sellers have an economic rationale? In what forms is collusion present and operational? Does a single firm or a cartel basically set the pace for output and pricing in an Oligopoly market?
Expected Learning Outcomes
At the end of this case, the participants should be familiar with:
- • Characteristics of an Oligopoly market
- • The concept of Price rigidity and its impact on the market equilibrium
- • The manner in which price – output decisions are made under Oligopoly
Prerequisite Conceptual Understanding
- • Paul Samuelson and William Nordhaus, “Chapter 10: Oligopoly and Monopolistic Competition”, Economics, 19th Edition, McGraw-Hill Education, July 13th 2010
Traditionally this caselet will follow discussions on Perfect Competition and Monopoly. However, given the style of the caselet it can be used in an introductory session for Perfect Competition and a simultaneous discussion of Perfect and Imperfect markets can be an unconventional approach to follow.
- I. What is meant by an Imperfect Market? Discuss the features of imperfect markets by comparing and contrasting with perfect competition.
- II. Explain Oligopoly and its characteristics.
- III. Inferring from the case facts, assess the price rigidity of fruit sellers. Can a single seller increase his sales by offering a discounted price of `40 for a kilogram of mangoes? Illustrate the concept of kinked demand curve.
- IV. ..................
Case Analysis and Discussion
This caselet’s discussion was carried out as per the Board Plan presented below. To ensure that the stated learning outcomes are effectively and satisfactorily achieved this caselet should be discussed under five broad segments.........