Econ essay oligopoly

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Abstract This report is an empirical study of oligopoly in the global music industry and includes researches about concentration ratio, price leadership, abnormal profits etc. The aim of the report is to examine the extent to which the global music industry reflects the theory of oligopolistic markets by providing evidence of independent research with various recent examples. The data stems from a variety of reference books, websites, surveys and articles on the Internet. Contents Abstract 1 Introductions ...... 2 Methodology . 2 Findings and Discussion Concentration Ratio .. 2-5 Price Leader .. 6-7 Abnormal Profits 7-8 Non-price competition ... 8-9 Uncompetitive behaviour ... 10 Barriers of entry . 10-11 Conclusion and Recommendations .. 11 Reference . 12-14 Introductions The global music industry has a market structure of oligopoly. Prior to 2004, the industry was dominated by 5 key players Universal, Sony, BMG, Warner and EMI. However in 2004, the market was dominated by 4 players instead due to the merger of Sony Music and BMG. Today, the digital revolution is changing the face of the music industry. Will the merger of other firms be further continued Will the illegal downloading exert pressure to the survival of firms The report aims to illustrate the researches about concentration ratio in the global music industry and the price leader in the market as well as discuss the theory of oligopolistic markets. Methodology The information of this essay is mainly based on the articles and researches from the library at University of Bath, which are more likely persuasive and reliable. Other relevant figures, charts and graphs are also stemmed from IFPI, BBC News, the guardian etc. There are also a small proportion of data found which are scattered in the internet and reference books. Findings and Discussion Concentration ratio According to Oxford Dictionary of Economics, Concentration ratio refers to the proportion of total market output produced by the N largest firms in an industry. It is used to show the extent of market control of the largest firms in the industry and to illustrate the degree of whether an industry is oligopolistic. Concentration ratio is calculated by adding up the percentage of market shares held by the largest firms in an industry. Changes of concentration ratio in the music industry in 2002, 2005, 2007 will be discussed by comparing their 4-firm concentration ratio in the following In 2002, the music industry has a five firm concentration ratio. The five key players include Universal Music Group, Sony, BMG, Warner and EMI. Chart 1.1 presents data of global music market shares dominated by 5 key players respectively in 2002 were Universal with 25.9, Sony with 14.1, Warner with 11.9, EMI with 12, and BMG with 11.1. Chart 1.1 INCLUDEPICTURE http//newsimg.bbc.co.uk/media/images/39539000/gif/_39539565_music_pie_203.gif MERGEFORMATINET Source BBC News (2003) The four-firm concentration ratio in 2002 is therefore 25.9 14.1 11.9 12 63.9. As the four-firm concentration ratio is higher than 60, which reflects that the market is likely oligopolistic. In 2004, merger of Sony Music and BMG was proposed, which left 4 key players dominating the global music industry. Chart 1.2 shows the data of global music market shares dominated by 4 key players respectively in 2005 were Universal with 25.5, Sony BMG with 21.5, EMI with 13.4, and Warner with 11.3. Chart 1.2 HYPERLINK http//upload.wikimedia.org/wikipedia/commons/7/79/WMM-IFPI.svg INCLUDEPICTURE http//upload.wikimedia.org/wikipedia/commons/thumb/7/79/WMM-IFPI.svg/320px-WMM-IFPI.svg.png MERGEFORMATINET Source IFPI (2005) The concentration ratio in 2005 is therefore 25.5 21.5 13.4 11.3 71.7. As the four-firm concentration ratio is above 60, in which the music industry is
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