The Curry Wars

THE CURRY WARS

Collusion between restaurants suggests that they are operating under oligopoly, not monopolistic competition. Do you agree?

Monopolistic competition is a market structure that displays certain characteristics:

* The are a large number of firms resulting in small market shares. Each firm has a small percentage of the total market and thus has only limited control over market price. As a result, any adjustment the firm makes in pricing their goods is unlikely to have an impact on the total market.In this case the firms are said to be independent.

* There are little or no barriers to entry into the market.

* There is no collusion between firms.

* The products offered are differentiated.

Oligopoly is characterised by the following:

* There are only a few firms offering that product in the market. They set their own price, but must be aware of what rival firms are doing in the market. As a result, each firm 'keeps an eye' on the pricing policy of its competitors. Firms here are said to be interdependent.

* There are barriers to entry into the market. This allows the few firms to achieve economies of scale.

* Possibility of collusion between firms.

* The products offered can be differentiated or undifferentiated.

Typically, the restaurant sector in large countries such as Britain, displays traits of monopolistic competition. However, the Indian food segment of the market, as outlined in the case study, and in the cities of Bristol and Hamstead, is operating as an oligopoly.

Although there was a proliferation of Indian restaurants and take away outlets in the 1990's, there will still be only a few of these restaurants in the whole market. In various cities across the UK, these firms are aware of what other restaurants are doing with their prices. The close geographic proximity aids in that effort.

In Bristol, it appears that the structure was initially monopolistic competitive. While they competed on non-price factors, it would appear that the market was setting their prices. With the recession, however, a inward shift in the demand of the consumers led to the restaurants scrapping for scarce dollars. A price war resulted. At this point, the Indian food segment ceased to operate as a monopolistic competition, and started taking on Oligopolistic features.

A price war where each firm slashes as a result of reductions in the prices of other restaurants is indicative of an oligopoly. Subsequently, cartels were formed to ensure a harmonious