Why is Disney considered an oligopoly?
According to the letter of the law, Disney is an oligopoly, a state of limited competition in which a market is shared by a small number of producers or sellers. Disney seems like a monopoly because it's the home of some of the most recognizable brands the world has seen.
An oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies. The number of firms is small enough to give each firm some market power.
Some of the most notable oligopolies in the U.S. are in film and television production, recorded music, wireless carriers, and airlines. Since the 1980s, it has become more common for industries to be dominated by two or three firms. Merger agreements between major players have resulted in industry consolidation.
The Walt Disney Company does not have an entertainment monopoly. It has signficant competitors in motion pictures, television broadcasting, cable television, online streaming, theme parks, and its other entertainment businesses. Consumers have a choice to see a Warner Bros.
Disney utilizes a decentralized cooperative multidivisional (M-form) organizational structure. This focuses on different business types and is common in diversified companies that have a wide breadth of operations, especially where these operations are carried out globally.
Some examples of oligopolies include the car industry, petrol retail, pharmaceutical industry, coffee shop retail, and airlines. In each of these industries, a few large companies dominate.
What are the characteristics of oligopoly in economics? Oligopoly characteristics include high barriers to new entry, price-setting ability, the interdependence of firms, maximized revenues, product differentiation, and non-price competition.
- Firms are interdependent.
- Product differentiation.
- High barriers to entry.
- Uncertainty.
Pure or Perfect Oligopoly: If the firms in an oligopoly market manufacture homogeneous products, then it is known as a pure or perfect oligopoly. Even though it is rare to find oligopoly firms with homogeneous products, industries like steel, cement, aluminum, etc., come under pure oligopoly.
Oligopoly Example: U.S. Domestic Airline Market
An example of a modern oligopoly is the U.S. airline industry, where four carriers hold in excess of 2/3 of total market share. The four carriers are: American Airlines (AAL) Delta Airlines (DAL)
Why oligopoly is the best?
The biggest reason why oligopolies exist is collaboration. Firms see more economic benefits in collaborating on a specific price than in trying to compete with their competitors.
Oligopolies are markets where profit maximising competitors set their strategies by paying close attention to how their rivals are likely to react. In these conditions, firms might differentiate their products, which can benefit some consumers, but at a price.
The Walt Disney Company's Generic Strategy for Competitive Advantage (Porter's Model) Disney uses product differentiation as its generic strategy for competitive advantage. Michael Porter's model states that this strategy involves unique products offered to many market segments.
It's clear from the raw data that Disney (DIS) doesn't strictly qualify as a monopoly just yet. As mentioned earlier, its share of the US and Canada box office market was far off even being a majority at 25%, while its dominance in the home streaming category fell well behind Netflix and Amazon at just 11%.
This means that Disney has already secured a massive advantage in the industry of film, which, when combined with their monopoly on theme parks, makes them a capitalist superpower. These revenue streams are what Disney is most recognized for and provide more than a quarter of its annual profit.
Disney Psychographic Segmentation
This is evident in Disney's wide range of entertainment content and merchandise, from classic Donald Duck to Disney Princesses, Marvel superheroes and Star Wars.
The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media.
Disney's corporate level strategy is geographical diversification, which is aligned with its mission to deliver entertainment experiences for global audiences. According to the Walt Disney Company (2021), it has physical operations in over 80 countries in the Americas, Europe, Asia-Pacific, the Middle East, and Africa.
- Large Investment of Capital: ...
- Control of Indispensable Resources: ...
- Legal Restriction and Patents: ...
- Economies of Scale: ...
- Superior Entrepreneurs: ...
- Mergers: ...
- Difficulties of Entry into the Industry:
Understanding Oligopolies
The economic and legal concern is that an oligopoly can block new entrants, slow innovation, and increase prices, all of which harm consumers. Firms in an oligopoly set prices, whether collectively—in a cartel—or under the leadership of one firm, rather than taking prices from the market.
Is Netflix an oligopoly?
Netflix operates in the streaming and entertainment market and this particular market's structure can be defined as an 'oligopoly'.
Oligopolies can be followed in several industries such as steel, aluminum and automobile industries. In other words, oligopoly is defined as the market strategy that consists of several small numbers of firms. These firms or producers work explicitly to restrict output and thus control the market returns.
First, an oligopolistic market has only a few large firms. This condition distinguishes oligopoly from monopoly, in which there is just one firm. Second, an oligopolistic market has high barriers to entry.
- A Few Firms with Large Market Share. ...
- High Barriers to Entry. ...
- Interdependence. ...
- Each Firm Has Little Market Power In Its Own Right. ...
- Higher Prices than Perfect Competition. ...
- More Efficient.
The three most important characteristics of oligopoly are: (1) an industry dominated by a small number of large firms, (2) firms sell either identical or differentiated products, and (3) the industry has significant barriers to entry.
We have now covered three models of oligopoly: Cournot, Bertrand, and Stackelberg. These three models are alternative representations of oligopolistic behavior. The Bertand model is relatively easy to identify in the real world, since it results in a price war and competitive prices.
The market power of an oligopoly is such that it bars entry to new firms, limiting competition, and is generally bad for consumers because it causes higher prices.
Prices. A monopolistic market may quote high prices. Since there is no other competitor to fear from, the sellers will use their status of dominance and maximize their profits. Oligopoly markets on the other hand, ensure competitive hence fair prices for the consumer.
In the 1900s several large companies dominating the U.S. automobile and steel industries were the first oligopolies. These oligopolies attracted the close scrutiny of the U.S. government, and, over time, the U.S. government made some forms of oligopoly illegal under laws known as antitrust laws.
Monopolistic competition is probably the single most common market structure in the U.S. economy. It provides powerful incentives for innovation, as firms seek to earn profits in the short run, while entry assures that firms do not earn economic profits in the long run.
Is oligopoly better than perfect competition?
Prices are usually higher in an oligopoly than they would be in perfect competition. Because there is no dominant force in the industry, companies may be tempted to collude with one another rather than compete, which keeps non-established players from entering the market.
Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.
“We've all known the power of attracting emotions through strong storytelling, and that's what makes Disney so unique. At Disney, it's about the power of narrative and being able to create a world with a theme and characters, to draw emotions that are common to all people around the world.”
- One of the world's most valuable brands.
- Growing portfolio of popular products.
- Strong cooperative growth among business segments.
| Strengths | Weaknesses |
|---|---|
| 1. Strong product portfolio 2. Brand reputation 3. Competency in acquisitions 4. Diversified businesses 5. Localization of products | 1. Heavy dependence on income from North America 2. Few opportunities for significant growth through acquisitions |
...
The Best Brand in Media.
| Business Segment | Market Share | Position |
|---|---|---|
| Direct-to-Consumer & International (Movies & Entertainment) | 17% | 2 |
Competitive Analysis
Disney competes with many different media conglomerates across its various business lines. The company's largest competitors are Comcast, Time Warner, 21st Century Fox, CBS Corp., and Discovery Communications.
Fireworks. The Walt Disney Company is the largest consumer of fireworks in the world and the second largest purchaser of explosive devices, right behind the U.S. Department of Defense.
In celebrating its 50-year anniversary, one study estimates that Disney brings $75.2 billion in annual economic impact – along with 463,000 jobs and $5.8 billion in additional state tax revenue.
The market structure of major theme parks in the U.S. can be called an oligopoly.
Is the movie theater industry an oligopoly?
Explanation of Solution. The market structure that best describes the movie production companies is oligopoly. It is because there are only a few players in the market that account for most or all of the production.
By 1930 eight studios dominated the Hollywood film industry in the form of an oligopoly: a situation where the market is completely dominated by a small number of companies, resulting in limited competition.
Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.
Disney's Market Share
Companies don't typically become monopolies overnight. In fact, one of the principal characteristics of a market-dominant business is the ability to tame its competition through the process of mergers and acquisitions. On this point, Disney definitely ticks the box.
What are the characteristics of oligopoly in economics? Oligopoly characteristics include high barriers to new entry, price-setting ability, the interdependence of firms, maximized revenues, product differentiation, and non-price competition.
Oligopoly is a market structure characterized by only a few firms controlling the large majority of the market share. It is very similar to a monopoly and much more common, except rather than just one firm, two or more firms dominate the market.
The market structure that Netflix operates under is an oligopoly. In an oligopoly, there are a few companies that control the entire market. In the streaming market, Netflix, Hulu, and Amazon Are the main competitors. In this type of market, price wars have a chance of occurring.
Disney uses both a market-oriented pricing strategy and a value-based pricing strategy for its products.
Value-based pricing strategy
Disney uses the market-oriented pricing strategy for products like movies, which are priced based on popular industry standards. Meanwhile, the value-based pricing strategy is applied for different products, such as memorabilia at the company's parks and resorts.
Targeting Audience Segments with a Multi-Channel Strategy
One way Disney keeps its fans engaged is by strategically creating content for different audience segments. For example, Disney's Star Wars revival effectively drew in both millennials and older generations who enjoyed the original Star Wars.
What are two examples of oligopoly?
Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel.
Interdependence. The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions.