Answer to Question #128057 in Microeconomics for Avhasei

Question

Identify the type of market/industry structure that is applicable to the Cinema industry in South Africa.Justify your answer by referring to the main characteristics of this market structure.

Answer 1

The cinema industry in South Africa takes the form of an oligopoly market structure. The cinema industry of South Africa simply refers to the country's film industry. Cinema forms a significant component of the entertainment industry. 

An oligopoly refers to market structure dominated by a few sellers of a specific commodity. A few sellers produce the entire output in an oligopoly market structure. The contribution of each seller happens to be sufficiently large to be significant in the market. Therefore, the actions of each firm can influence the price of the industry's output.

The South African cinema industry is an oligopoly, first, because it has few large sellers, such as Ster-Kinekor and Nu-Metro. Second, these few sellers' contributions to the country's cinema industry are large enough to an extent they can influence the industry's price of the output. For instance, three players Kinekor, Nu-Metro, and Uip, control close to 96 % of the country's cinema industry. Third, there are barriers to entry to the South African Cinema industry, making it difficult for small firms to enter the market and compete effectively with the few large players like Uip and its counterparts who enjoy economies of scale. Fourth, the industry is marked by a high level of interdependence among the few firms in terms of price setting. In case one player makes a move, especially a price change, the other players tend to be aware and follow suit; hence no player significantly benefits in the long-run. This interdependence explains price rigidity in the industry. Lastly, the firms in the country's cinema industry exhibit a form of competition, a non-price competition that allows them to avoid price wars and earn super-normal profits even in the long-run.