Business economics

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National Environmental Agency has seen the need to raise the standards of refrigerators
being sold in Singapore. The energy efficiency will be indicated with the number of ticks. The
more the number of ticks a refrigerator has, the more efficient it is in terms of energy.
Singaporeans will benefit from this because it will be easier for them to save on the costs of
Economic Analysis
Oligopoly is a market structure where few firms have a big share of the market. As the
National Environmental Agency in Singapore seeks to raise the standards of energy efficiency in
refrigerators, it means that fewer firms will be able to bring their refrigerators into the market
since some will not meet the minimum requirement of the standards.
(Salop, 2012).
According to the kinked curve above, a firm in an oligopolistic market will achieve profit
maximization at Q1, P1 and at the point where MR is equivalent to MC. This means that an
alteration on MC may not interfere with the prices at the market. The few firms in Singapore that
will be left after phasing out some firms that stock substandard refrigerators will try everything
possible to maximize profits. As all the firms in the market seek to maximize their profits, it will
reach a point where there will be an equilibrium in terms of profit maximization at P1 and Q1. At
this point, the Singaporeans will have got used to the few firms in the market and the policy of
the National Environmental Agency. At this point, P1 and Q1, the Singaporeans firm will be
focusing more on improving their businesses so as to woo more customers to them (Salop,
Price wars that are short-lived are also expected among the few firms in Singapore. For
instance, firms may alter the prices of refrigerators so as to achieve some short-lived advantages
that may come up. For instance, if the Singaporean government advertises that there is a need to
supply refrigerators to one of the public institutions, the firms will tender with different prices
and the one with the best prices will get the opportunity to supply the refrigerators.
Monopolistic competition is also possible in Singapore after the policy of National
Environmental Agency.
(Salop, 2012).
Here, the Singaporean firms will make their own decisions as far as refrigerator prices are
concerned. Each firm rebrands its own product the way it deems fit for the market. At the point
when MC is equivalent to MR, there will be profit maximization. Supernormal profits are also
possible above ATC at Q. It means that some of the remaining firms selling refrigerators will be
favored by Singaporeans buyers because of may be product branding or differentiation. If
another refrigerator selling firm enters the market, the elasticity of the demand curve increases.
(Salop, 2012).
However, the supernormal profits are likely to attract more firms which will cause the
demand curve to shift to the left. Since the market entry is open, firms that have satisfied the
minimum standard requirement will continue entering the market until that point when there will
only be normal profits.
Raising the standards of refrigerators in the market means that the Singaporeans will not
be going for the ones deemed substandard, and the firms dealing in such refrigerators will be
phased out of the market. This will lead to oligopoly and monopolistic competition as a result of
the few firms available.
Salop, S. C. (2012). Monopolistic competition with outside goods. The Bell Journal of
Economics, 141-156.

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