While the use of electric powered vehicles is increasing, most vehicles still rely on gasoline. The gasoline industry is a great example of monopolistic competition. Let's look back at what monopolistic competition entails. The 3 main criteria are a large number of firms, differentiated products, and easy entry into the market. Additionally, the firms each have control over their price as the market has nonprice competition. As of now, there are a fairly large number of firms. While 10 companies dominate 50% of the industry, the other 50% has a lot more, smaller firms. The different companies have generally the same product (Gasoline), but often have some differentiation in the purity or technology of the gasoline they sell. Furthermore, they have control over their price, which allows them to constantly change. However, it does have to follow the trends in order to be competitive with other stations.
As we've seen, the gasoline industry resembles monopolistic competition, I believe this might change. The oil industry is an oligopoly of 7 dominant companies. Some of these companies include ExxonMobil, Shell, and Chevron. These companies also are some of the big gasoline suppliers. This brings us to wonder whether this extra power they have over the industry will allow them to become a superpower in the industry. While there is still a large number of sellers, it seems probable that that may change. Smaller family-owned gas stations are beginning to lose business, and some are even being taken over and converted into Shells and Chevrons. These smaller gas stations seem to only be alive due to their ability to constantly set a competitive price. For now, it seems that the industry will be in monopolistic competition. However, we can't ignore that an oligopoly could potentially occur here. A small number of companies controlling such a large and essential industry could be very dangerous. We must wait and see where this market goes. After hearing about the enormous control oligopolies have over an industry in class, I can only hope the market remains where it is.
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This is an great post about how markets can change from monopolistic competition to oligopolistic competition through larger firms buying out all the smaller firms in the market. A smaller number of companies competiting could mean higher pricepoints which would hurt consumers. You brought up an interesting post about how electric powered vehicles are becoming much more prevalent, and I wonder how that will affect the gasoline industry in the near future.
ReplyDeleteI really like the ideas you bring up in this blog post. I really like how you break it all down into very simple terms to make it easier to understand the gas industry. I also think it is interesting how you are predicting a shift in the market type. Often times we focus on the current situation of companies, such as Google or Facebook, but we fail to look at the companies that could be a threat in the long run.
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