I'm hoping someone can help. I have submitted my paper for Econ but cannot pass it. Can someone please look it over and tell me what I am missing. I only have one more attempt to submit it to pass so any help is appreciated.
This is my paper:
Detail the Current Market Structure
The current market structure of Oil Company X is oligopolistic market structure. This is a market structure with a few large competitors offering the same product (Tucker, 2010). Companies from oil-producing countries control the largest market share, followed by Oil Company X. The two companies control more than 60 percent of the market share. Other companies in the industry share less than 40 percent of the market share.
The Anticipated Market Structure
The future market structure will still remain oligopolistic given that completion of the pipeline and trade restrictions cannot completely eliminate other firms in the industry. However, the firm will increase its market share in relation to other small U.S. domestic oil companies. The company will have a huge influence on the U.S. domestic oil companies. It may assume the responsibility of price leadership as the dominant firm, where other companies will raise their prices and lower their prices when it does. The move may also be taken to exert control over the U.S. oil market.
Characteristics of the Oligopolistic Market Structure
Number of competitors
They are a small number of competitors, and the market is dominated by large firms (Tucker, 2010).
Oil Company X with OPEC companies currently dominates the market in terms of market share.
Barriers to entry
High barriers to entry since large firms usually have control over the source of raw materials and have financial, infrastructural resources, and patents rights hence locking out new entrants (Tucker, 2010).
After the completion of the pipeline, Oil Company X will have huge infrastructural resources that will make it difficult for new competitors to penetrate the market.
Buyers are price sensitive hence increase in price over what buyers can bear leads to shift towards substitute products. Moreover, competitors also monitor the price of each other. If one competitor lowers their price, others may retaliate by reducing price with a huge percentage, hence all making a loss. On the other hand, one seller cannot increase the price since customers will shift to competitors.
All the firms sell the same products (Tucker, 2010).
Company Oil X is selling the same product as competitors.
Cooperation on prices and price leadership
Firms in the industry agree to sell at the same price. An example includes the OPEC cartel where the involved countries have a contract to sell hold down output to increase the price. In other situation, one firm can take the responsibility of setting prices which others have to follow to make profits and stay in business (Tucker, 2010).
Changes in the Firm's Pricing Strategy after the Change in the Market Structure
After completion of the pipeline, and an increase in trade restrictions, Company Oil X may change its pricing strategy to assert control over the U.S. oil market. In this case, the company will reduce its prices, to force other small companies that cannot compete at a reduced price to exit the market. It will be able to operate at the reduced price since it has its own distribution channel and enjoy other economies of scale. At a reduced price, it will increase the quantity of oil supplied to maximize its profits (see the graph below). Therefore, in the short-run, Company Oil X will reduce its price to drive out weak competitors. As the number of competitors in the U.S. oil market reduces, in the long-run, it will influence other competitors to hold down production to force an increase in price. However, the increase in price will also depend on the price of substitute products.
When Oil Company X reduces the price to 58.50, its quantity sold increases from 70 million barrels to 85 million barrels. When the company reduces the price, its competitors will also reduce to hold onto their market share. Those who cannot operate at a reduced price will be forced out of business. In the long-run, the pricing strategy of the company will change towards profit maximization and price leadership. It will set its price a point where it can increase its profits without losing its market share to competitors.
The feedback I received is below:
**Under the section 'The Anticipated Market Structure':
You were asked to provide an accurate explanation of the anticipated market, using clear examples and well-defined reasons for proposal recommendation. The future market structure assumption is inaccurate since the single pipeline would assume 1 firm in complete control of the pipeline production market.
**Under the section 'Changes in the Firm's Pricing Strategy after the Changes in the Market Structure':
NEEDS REVISION: You were asked to provide an accurate explanation of changes to price, quantity, and pricing strategy , using clear examples and well-defined reasons for proposal recommendation. Please revise this portion of your response to reflect the explanation of changes to price, quantity, and pricing strategy as it relates to the correct Market Structure. Your assertions were incorrect.
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