Cigarette Oligopoly

Cigarette Oligopoly Market Chayleen Marquis Benedictine University Author Note This research is being submitted on May 2, 2010, for Professor Raymond Bells MBA 611 course at Benedictine University by Chayleen Marquis. The cigarette mart is one that is known to e veryone. From magazine advertisements to constructive commercials people have been exposed to this market start at a young age.The constant visuals of the advertisements as hearty as the free advertising that occurs daily with people grass exterior their office, in their car, and outside the night life scene the cigarette market has a benefit of using the free advertising as a benefit to their comp either at no cost. The cigarette market is a clear example of an oligopoly market because it is mostly run by a few large firms such as Philip Morris USA, Commonwealth Inc, Lorillard Inc and Reynolds American Inc.Due to the fact that an oligopoly market is hard to non only come into but also basic everyy controlled by these la rge firms any new competitor is waiver to have a difficult measure entering this market, being profitable in comparison to these firms and really having any fiber of say in the price or the output. A benefit of being an oligopoly is the fact that the prices are not determined for them but the larger firms to a greater extent or less make the prices in reflection of the coordination amongst each former(a).Essentially the large firms come together and decide what price they would like to see and then all of the cigarettes cost the same amount across the board. Of course one concern that oligopolys must make sure that they are not be composite with is price fixing. Price fixing is when the competitors of a market fix the product price to avoid competition within their market, while at the same time not being fair to the consumers of the product in regards to the price.The price fixing does not al looks happen in the midst of the competitors but it also can be a factor between manu facturers and distributors. So as an oligopoly the firms must ensure that the price fixing is not occurring at any levels of their production. Most people savour at an oligopoly market and think that they act as a monopoly because the main firms completely control the market. However in an oligopoly the main firms each have a distinguished product brand that sets them apart from their competitor even f it is in the smallest difference. These brands allow each firm to stake claim on consumers in a memorable way to keep consumers approach back for more. In reference to the cigarette oligopoly most consumers have smoke Marlboros from the beginning of their smoking career and have never strayed from the product that they know. In an oligopoly market if one firm drops their prices another firm is more likely to drop their prices as well to not only tour competitive but to also retain their market share.However if a firm were to increase their prices the other competing firm impart no t like raise their prices obviously to try and maintain as well as try to increase their market share. Price increasing is not something that occurs often in an oligopoly market which in turn makes the market inelastic in regards to price change. The use of the game possibility is commonly used in oligopoly markets such as the cigarette industriousness.Making moves in the market without fully knowing how your competitors are going to respond and knowing that if one move that is make can definitely benefit all firms is a tough task to attempt. Making a decision that could help out the companies is not always going to be perceived by the other companies and can back fire on the company who makes the initial decision which in turn would leave them more than likely with a net loss. In the cigarette oligopoly market I see promotion as a game theory used between the competing firms.Many different events are held and it seems that the cigarette firms are there to give away free seeks of t heir new products, free t-shirts and of course creating a bond with the consumer which makes them stay a loyal customer and even gets some consumers to switch products. An example would be from Camel cigarettes to Marlboro cigarettes. As mentioned before advertisement is something that drives the cigarette oligopoly. With the promotions being such a market to get more and more people daily to advertise freely for the company cigarette firms use every opportunity to do so. in general during these promotion periods the cigarette companies will use the foot traffic to do the free advertising for them. This is an extremely smart move because in reality who does not want a free t-shirt. The competing firms do not know when competition is always having a promotion such as the ones mentioned above and could see a decrease in sales during a competitors promotion or even right after one. Another example of the game theory used in the cigarette oligopoly market is when purchasing a regular fi rm product giving out a free ull size sample of a new product to get consumers to try it, which then leads to the consumer not having to purchase their product for a longer period of time. In the cigarette industry I believe that profit has been maximized. There are not a lot of changes that can keep occurring in this industry that can great greater profits than the ones occurring right now. There is only so much change that the cigarette market can endure and change that I believe the market has no new product line to go to.The cigarette market is such an intricate market with a product that has been sold the same way for years and years people dont want it to change. The only profit the cigarette industry is going to see is when prices rise late due to inflation. Other than taxes being enforced by states and the federal government the price for a pack of cigarettes is not going to change drastically by any firm in caution of losing its market share.The competition in the cigarett e market is beneficial to the consumers because of the promotions they provide with all of the free merchandise. Unlike other oligopolies the cigarette market is not elastic so price changes that would occur in other oligopoly markets that affect the consumer dont not occur in the cigarette market. Competition in other oligopoly markets can directly negatively affect the consumer but because the cigarette market is a market that change seldom happens, prices are the same regardless the brand the competition is a benefit.In conclusion the cigarette market oligopoly market is a pretty stable very profitable market that has proven to stand the test of time, anti-smokers protests and even recessions. This market has a proven track record and has no intent to go anywhere. With the energy to use consumers for free advertising this market has saved money in the marketing department which usually helps fight law suits but still keeps its consumers coming back for more each week.The amount for a pack of cigarettes today is between four and five dollars and for the amount of smokers that casually smoke to the addicted smokers who go through a pack a day the cigarette market is not going anywhere and profits they are seeing are barely astounding. References Thomas, C. R. , & Maurice, S. C. (2008). Managerial Economics (9th ed. ). New York, NY McGraw-Hill Irwin. Market Information-Philip Morris USA. (n. d. ). Retrieved April 26, 2010, from http//www. pmusa. com/ed/ cms/Company/Market_Information/default. aspx