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National Book Store as an Oligopolistic Firm
National Book Store is part of the book retail industry which operates under an oligopoly. "Why?" you may ask. This is because it fits in the several characteristics and behaviors of an oligopolistic market. Here we present why National Book Store operates under an oligopoly.
Characteristics
Few Sellers Dominate the Book Retail Market
Based on the pie chart presented to the left, National Book Store, Fully Booked, PowerBooks, and Goodwill Bookstore are the dominant firms in this market with National Book Store having the highest market share of 20%. Hence, this checks the most important feature of an oligopolistic market, the presence of few dominant sellers in a market.
Restricted Entry
The book retail market has a restricted/difficult entry as it requires a huge capital to start a book retail company, let alone to be able to keep up with the dominant pre-existing firms in the market. Starting a business here would seem unreasonable as there are already companies in this industry that people love and trust. Hence, entry in this market is restricted or difficult.
Sells Heterogeneous Goods
An oligopoly may accept either homogeneous or heterogeneous goods but in National Book Store's case, heterogeneous goods are what they provide. Their products range from hard copies of books to office/school supplies. Examples of what they sell are books, highlighters, pencils, ball pens, markers, and glue to name a few.
Imperfect Information
An oligopoly, an example of imperfect competition, has imperfect information which is evident in National Book Store as it is able to maximize its profits by changing prices(with the sellers and buyers having little to no clue about the actual production cost for a good in the firm).
Behaviors
Price Searcher
Having imperfect information and heterogeneous goods make National Book Store a price searcher. With imperfect information, National Book Store is able to maximize their profit by changing the price of their products to a greater but reasonable price (relative to the good's production cost). Hence, National Book Store is a price searcher
Interdependent
National Book Store is interdependent in terms of its decisions. This is why prices tend to be rigid in the book retail industry because a slight variation/decrease in a product's price of a particular dominant firm in the industry might influence the decision of other firms in lowering their prices which might cause a price war. Since National Book Store is the firm with the highest market share in its respective industry, it is the price leader and should attempt to avoid a change in the price of its product which might create a price war and minimize its profit.
Prices Tend to be Rigid
Prices in the book retail industry tend to be rigid because of the fear of creating a price war. A price war is basically a competition in which companies lessen the price of their goods in order to attract buyers. Firms are afraid of starting one because this can cause the minimalization of the firms' profit. Hence, prices in the book retail industry tend to be rigid.
Non-price Competition is Common
As prices in the book retail industry tend to be rigid, firms in this industry often compete through non-price means. This is why National Book Store often advertises and offers gifts to its buyers. They also improve their good/service quality which is caused by customer complaints and other factors. They can also advertise a product's great quality which the ball pen testing area of National Book Store is a great example of.
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