"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

-Adam Smith, The Wealth of Nations

One of the public transport in Singapore is the Mass Rapid Transit or MRT which is ran by 2 operators, SMRT and SBS Transit. In economics, when there are only 2 dominant producers in a single market, it is called a Duopoly. Duopoly is a specific type of oligopoly. Oligopoly is a market form in which it is dominated by a small number of sellers.

Often, in a oligopolistic competition, firms collaborate together in hope of rising prices and restrict production in the same way a monopoly firm does. An example would be the Organisation of the Petroleum Exporting Countries or OPEC. OPEC is a cartel of 12 countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. A cartel is a form of agreement where firms agree to coordinate prices and production.

From wikipedia:
Above the kink(E), demand is relatively elastic because all other firm's prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and kink point.

Previously, before the opening of the North-East Line, the Mass Rapid Transit is only ran by 1 firm, SMRT. To prevent monopoly, the governement has given SBS Transit to be the operator for the North-East Line. On top o0f that, any price changes would have to be approved by the Public Transport Council.

Zhen Qiang

Labels: Monopoly