Nature Of Oligopoly

In the bookstore industry one very well known firm is Aligarh Bookstore in Lahorei. It has a market share between 10-15% (the firm’s own estimate) .The degree of market concentration is quite high that is the big book stores have a total market share of between 40 - 60% (estimated figure) . Big book stores being those stores that are well established, have been in the market for many years and are well known. Firms in an industry compete for market share and the competition can be of many types. Currently in this industry (bookshops) there is a mix between non-price competition and branding. Those firms who have greater focus on marketing will have a chance at getting more market share. Also branding does matter as people trust more the stores that have been around for years on end like Aligarh or Iqbal or Anees book store. These three book stores have operating in the market for near 10 years and are well reputed stores. Collusion most often takes place within the oligopoly market structure, where two firms can collude and impact the market as a whole. Regarding this industry, collusion is not present much between the book stores; every bookstore is working on their own and there is not much cooperation present between the stores. However, there is a certain level of interdependence present between the firms, publishers and suppliers. If there is demand for a certain item which is not available with a certain bookstore or their publisher, they will then contact another bookstore, publisher or supplier to get that item Currently in the bookstore industry (specifically Lahore) the price leader is “Lala Book Depo” in Dharampora .They cater to the government sector (this is all that we were told). A firm’s abnormal or supernormal profit is a profit that outstrips the normal profit. In this industry the firms are earning the normal profits that equal the opportunity cost of labor and capital. For every firm that tries to enter a new market and want to go global, there are certain barriers which prohibit new firms from entering. If any local firm wishes to go global, then it first of all needs to know about its international and globally dispersed competitors and the barriers that it will face in going global.

Let us see some major players in the bookstore industry on the global level: Barnes & Noble: Barnes & Noble is a widely spread chain of book stores in United States. These stores are smaller in size when compared with the other stores, being found in outdoor strip malls and shopping malls and they sell magazines, newspapers, graphic novels, gifts etc. Every store is different from the other in that they provide unique features that correspond to the needs of the customers that they serve. Barnes & Noble also publishes many books it sells, inexpensively reprinting non-copyrighted titles or acquiring the U.S. or English language rights from another publisher. Blackwell’s: Blackwell is the Oxford’s biggest bookshop having more than 200,000 titles in stock that have information regarding every subject, discipline and interest. Through out the region it makes its books available to Oxford University and other learning institutions. Waterstones: Waterston’s is the largest retail booksellers in the United Kingdom - a UK based chain of bookshops.350 shops of Waterstones are located in UK, Republic of Ireland and continental Europe They are well known for their sympathetic reuse of buildings of architectural and historical interest. A substantial number of the shops are close to universities and offer a wide range of academic books as well as general books Amazon: Amazon.com Inc. is an American e-commerce company based in Seattle, Washington. They were one of the first major companies to sell goods over the internet and they had started as an online bookstore. Now they have diversified their products to include DVD’s, CD’s, computer software, videogames, electronics, furniture and more. Now moving on towards the barriers that this industry can face while going global:

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Set up cost: This setup cost will act as a major barrier to the industry

as the industry has to setup new stores internationally that will definitely require a huge sum of money and advertisements. There is also a substantial set up involved in setting up a new bookstore locally as well.

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Product Differentiation & Establishment: As the above mentioned

firms have already established their brand recognition and customer loyalty by using different marketing strategies like advertising and word of mouth so it becomes a barrier for the new entrant(our industry) to spend money and time in differentiating the products in the new market place and also to attract customers. It will also be quite difficult for a new entrant to establish themselves in an existing market where people buy items from stores that are not only well reputed but also have been present in the market for many years.

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Government Policy: In going global government interventions will

play a major role as a barrier for example industry regulations, legislative limitations on up coming firms and the special tax benefits for the current established firms.

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Access to channels of distribution: This is also a very critical

barrier that the industry has to face. The current firms in the industry have already established good and long lasting relationships with the supply chain logistics and value added networks .So to convince the distribution channels for the new products, the new industry has to spend on promotional campaigns and provide some discounts and incentives –these types of expenditures will at as a barrier for the industry. There is some interdependence in the bookshops industry but it depends on the bookstores source/supplier and the publisher. Because if there is some book or item that is not available with either of the two then the bookstore will contact another

bookstore and they will try to procure it for the customer fro any other alternative source. So we can conclude that in the bookstore industry does reflect the theory of oligopolistic market structures to some extent. We can say this by looking at the concentration ratio, that market competition, presence of price leader, barriers to entry and some interdependence which are the characteristics of an oligopolistic market structure. A true oligopolistic market structure does not exist because there are no bookstores present here that operate at the national level or in the manner that Barnes & Nobel or Waterstones operate in their own regions.

References

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Mr. Majid Aligarh bookstore, Lahore.

Websites:

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http://www.answers.com/topic/barriers-to-market-entry

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http://en.wikipedia.org/wiki/Collusion http://www.tutor2u.net/economics/content/topics/monopoly/oligopoly_notes.htm

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http://storelocator.barnesandnoble.com/find_a_store.do

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http://www.amazonfembks.com/

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http://en.wikipedia.org/wiki/Barnes_&_Noble

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http://en.wikipedia.org/Blackwell's bookshop

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http://en.wikipedia.org/wiki/Waterstone's

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http://en.wikipedia.org/wiki/Amazon_Books

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We would like to point out that our original intent was to get information from Saeed Book Bank in Islamabad. But when we went to interview them, they refused to cooperate and said that they could not offer us any kind of information. Therefore, we had to change our selected local firm.