Answer to Question #124014 in Microeconomics for lebogang

Question

Identify the type of market/industry structure that is applicable to the cinema industry in South Africa. Justify your answer by referring to the main characteristics of this market structure

Answer 1

Cinema industry fall under entertainment industry. It is therefore an oligopoly market structure.

Oligopoly is a market structure in which there are only a few sellers of a commodity. Under this, each seller of the film can influence its price output. In our case the cinema industry will fall under oligopoly.

This is because the number of sellers are not very large and each seller controls a big portion of total supply of films.

 Price is fixed under oligopoly without product differentiation.

Characteristics of oligopoly market structure.

1. Monopoly Power is practiced: There is an element of monopoly power in oligopoly because there are only a few firms and each firm has a large share of the market. For instance in South Africa the film producers and those who sell the films will be controlling the market. They will be fixing the price of a film.

2. Interdependence of Firms: Under perfect competition there are so many small firms and no single firm is strong enough to influence either the price or the output. The firms and in our case the film producers will only care about themselves.

3. There is a conflicting attitude of the firms: There are two major types of conflicting attitudes. One of the firms realizes the disadvantages of mutual competition and desire to combine to maximize their joint profits. This leads to firms coming into conflict.