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Business firms in Africa

Africa

Since we know that firm compete over price rather than quantity, the theory of oligopoly suggests that outcomes will approximate those of perfect competition even when there are only few suppliers in the industry .Discuss.

Oligopoly refers to a type of a market structure where there are only few firms in the industry and the firms deal in producing either identical or differentiated products. very many African countries enjoy these type of economy not because that it’s the best but because of the political influence that affects the business sector .an example in Uganda , from the survey we made its the presidential house owning most firms in the country and they subject other firms to factors that don’t allow new emerges of firms into the production area.

Oligopoly has the following characteristics in Africa.
There are only a few firms in the industry. Although there is no precise definition of fewness with regard to an oligopoly, an oligopolistic industry must be concentrated enough for each firm to recognise that the demand is significantly affected by its rivals’ prices and levels of output, and this doesn’t exist on the African continent because of what we explained above.

There substantial barriers of entry to entry in the industry. The existing firms in Africa, say passion fruit firm will discourage a jackfruit juice firm from entering the market. Attempt to discourage entry through a number of restrictive practices. For example they may expand their plant facilities in advance of anticipated increase in demand making it clear to potential entrants that plenty of low cost productive capacity already belongs to the established firms.
Firms in Africa are uncertain of the pricing and output decision that their rivals would take when there is an action by one firm hence no firm knows how much it can sell at each price and its demand and marginal revenue curve are unknown. Where small scale firms in Africa are affected deeply as they produce at times and market is limited .this discourages others from joining the sector.
There is heavy and extensive advertising and quality changes for instance if one firm reduces its price others may follow or may change their design or quality packaging or may involve in extensive advertising. On the other hand if one firm increases the prices simply because profit motives others may not follow idea of price I increasing. Some firms as they are in artificial economy where they don’t depend on profits but states money.

The firms recognise their mutual interdependence. This is a situation where the market share of one firm significantly affected by the actions of one or more of it’s rival firms.

Perfect competition refers to a market structure where are many sellers and buyers dealing in homogeneous products.

Perfect competition has the following characteristics in Africa.
There are many firms in the industry and the market for the product has a large number of independently acting buyers and sellers.
Buyers and sellers have perfect knowledge of the existing market condition s. as people in Africa look for the cheapest sources to buy from.as buyers in this sense are poor.

The products of all firms are identical [homogeneous] . Most firms in Africa are producing the same commodity, and these are consumable commodities and not durable ones.

There is free movement of resources into and out of the industry including free entry and exist of firms in the long run. Most firms keep moving from one place to another as a result of political influence & because of market search for there products.

Oligopoly and perfect competition have both differences and similarities In Africa.

The following are the similarities between perfect competition and oligopoly. In both oligopoly and perfect competition, firms aim at profit maximum competition.Oligopoly firm maximises profits with a kinked demand as shown in the figure below.

In summary Africa will still lag behind in terms of development as a result of political influence in the production sector .
Published: 2009-12-10
Author: nyombi sam

About the author or the publisher
Name :nyombi mwebaza Samson
Tribe: muganda
Nationality: Ugandan
Religion: Protestant
Schools Attended
I had my primary school from Makonzi boarding primary school. Then I went to
Ndejje senior secondary school for my ordinary level from 2001 to 2005
There after I attended my advanced level from st mary’s boarding school kitende in 2006 to 2007
In 2008 I joined makerere university

www.nossam enterprise.org

Source: nossam.com



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