Page 202 - DECO405_MANAGERIAL_ECONOMICS

Unit 12: Oligopoly

Notes
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Case Study Paint Industry — From Pure Competition to Oligopoly

ven as the paints industry is poised for further large-scale consolidation, the last
three years have already resulted in some reshuffling of companies. In the struggle
Efor the survival of the fittest, while some of the weaklings have faded away, the
stronger ones have gained more strength. The curious result — which, incidentally, is
taking place in other industries too — is that from the days when the industry operated
under pure competition, competition is slowly turning mesoeconomic (oligopolistic). In
other words, it is just a handful of companies which literally control the entire paints
industry now.
As these companies extend their mesoeconomic power, they may impose unequal
conditions of competition in the market. In contrast with the traditional view of a firm,
big companies would be multiproduct, multisectoral, multiregional and multinational.
What implications can this change in the market structure have on the functioning of
companies? What will be the impact on profitability?

Decorative paints
Others
27% Asian Paints
37%
Jenson &
Nichoison
6%
Goodlass
ICI India Nerolac
8%
11%
Berger Paints
11%

Industrial paints

Others Asian Paints
Jenson & 13% 15%
Nichoison
8%
ICI India
8%

Berger Paints Goodlass
11% Nerolac
45%
The emerging mesoeconomic industry structures, apart from indicating the relatively
small number of players, may cover even the differentiated product manufacturers such
as the paints. The existence of mesoeconomic structures could be seen from the concentration
ratios (market shares) of the dominant companies.
The top five companies — Asian Paints, Goodlass Nerolac, Berger Paints, ICI India and
Jenson and Nicholson — together control around 73 per cent of the total market for
decoratives.
The industry is even more concentrated in industrial paints, where the same top five
companies control around 87 per cent of the total market. These five would form the
mesoeconomic barrier which would be tough even for any new strong entrant to penetrate.

Contd...

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