However, because fast food is in part defined by its price point, the companies have only limited pricing power at the high end. Firms in the industry also tend to adopt either permanent or temporary cost leadership strategies (such as 99 cent menus) in order to attract business. The companies are unable to sustain low prices in this industry because the margins are inherently low and because most other firms are capable of matching those prices, negating any market share gains the low prices offer. Thus, fast food companies only have a small degree of pricing power, another characteristic of monopolistic competition.
The fast food industry exists within a broader "food" industry, which is a more competitive environment. Fast food companies are able to set their own prices in order to compete and fast food companies have simply chosen to follow cost leadership strategies. The segment of the food industry is so large, however, that it takes on its own industry dynamics. It is within those dynamics that the characteristics of monopolistic competition begin to emerge.
4. The Organization of Petroleum Exporting Countries (OPEC) is a cartel comprised of Algeria, Angola, Ecuador, Iraq, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE and Venezuela. The mission of OPEC is to "coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry" (OPEC.org, 2010). The price of oil is dictated by supply and demand. OPEC producers control the price of oil by announcing how much oil they will supply to the world market. This is done on the basis of estimates of supply from non-OPEC producers and on the basis of expected global demand (Ibid).
The product is relatively similar across all players in the industry. While there are some substitute energy products available, they are imperfect substitutes, meaning that the oil market is distinct from other energy markets -- an oligopoly in oil cannot easily be broken by substitutes. As a result, the OPEC countries are able to control prices by banding together. If the OPEC countries did not band together to control world oil prices, the price of oil would be lower as each nation would compete against all other nations. This would likely result in increased production, which if not met by demand growth would suppress prices. The outcome of having OPEC is that the price of oil is higher than it otherwise would be, the supply is lower, but ultimately the supply will last a little bit longer as well.
Works Cited:
Florida Juice.com, various pages (2010) Retrieved June 26, 2010 from http://www.floridajuice.com/
No author. (2010). Competition. eNotes. Retrieved June 26, 2010 from http://www.enotes.com/business-finance-encyclopedia/competition
OPEC.org, various pages. (2010). Retrieved June 26, 2010 from www.opec.org
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