Cartel and the Competitive Strategies and Collusions in Oligopoly Markets

Assignment 4
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Assignment 4 Question 1 A cartel is understood as a group of producers, which could be manufacturers or countries, that work together for the purpose of protecting their interests. After a cartel has been created, it can fix prices for its members in order to avoid competition on price (Salvatorre, 2014). An example of a cartel is the Swiss Franc bank cartel. This cartel was formed by several American and European banks including Deutsche Bank of Germany, Société Générale of France, Royal Bank of Scotland and Barclays Bank of Britain, Credit Suisse, UBS, JPMorgan, and Citigroup (Roberts & Griffin, 2016). The objective of the cartel was to collaborate on various interest rates derivatives. In this cartel, the banks manipulated widely used financial benchmarks. According to the Swiss Competition Commission, the banks collaborated in a cartel aimed at fixing Euribor for various durations of time between September 2005 and May 2008 (Kirton, 2016). They were penalized $100 million by the Swiss Competition Commission in anti-trust fines (Roberts & Griffin, 2016). The cartel came to an end after achieving its goal in 2008. Investigations by the Swiss watchdog started in 2012. Question 2                        An oligopoly market refers to a market structure that is dominated by a small number of big corporations. Even though the market has only a few companies that dominate it, the market also has several small companies that operate in it (Salvatorre, 2014). An example of an oligopoly is the carbonated soft drink market, which is dominated by two of the world’s biggest soft drink companies, namely Pepsi and Coca-Cola. Both corporations sell cola drinks that have the same color and taste, and are perfect substitutes. These competitors have been competing intensely against each other for many years now. They both control nearly 73% of the soft drink industry: Pepsi’s market share is about 31%, while that of Coca-Cola is about 42% (Ovodenko, 2016). The market share of the smaller companies in the industry is very small compared to the market share of these two soft drink giants. The competitive strategies in oligopoly markets include product differentiation, unique packaging, and making their products available on a large scale. To uphold its top position in its industry, Coca-Cola engages in product differentiation. The main competitors in an oligopoly market understand that they have to maintain a brand image that is considerably different from that of the main competitor. Coca-Cola and Pepsi create soft drink products which are almost indistinguishable. Even so, their marketing practices have been able to establish a high level brand loyalty for each product. Top competitors in an oligopoly also compete by making their product items available on an international scale. Coca-Cola and Pepsi have been able to achieve this goal, for instance by entering into contracts with restaurant chains to be the sole provider of soft drinks. They also compete effectively by offering a unique packaging for their products...