Answer to Question #129412 in Microeconomics for Sanelisiwe Mqhakama

Question

Two firms dominate the cinema industry in South Africa: Ster‐Kinekor and Nu Metro. Although these firms essentially offer a homogeneous product, each firm attempts to differentiate itself in the eyes of customers. Marks will be awarded for your ability to integrate theory with the scenario provided. 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

Since two firms dominate the market (Ster-Kinekor and Nu Metro), the type of market structure will be the Oligopoly market structure. Each of the firms, as in an Oligopoly market structure, controls a huge chunk of the total market in South Africa.

There are conflicting attitudes of the firms that offer the same product (as in an oligopoly market structure). Still, each one of them tries to differentiate itself in the eyes of customers, just like the case in the oligopoly market structure. As in an oligopoly market, Ster-Kinekor and Nu Metro are interdependent of each other since they dominate the market share in South Africa. If one of the firms is going to change the price of films, it will undoubtedly impact the other firm hence the interdependence.