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The development of the package holiday industry over the past decade has given many people the opportunity to visit and spend holidays at destinations which were previously visited mainly by the rich and fortunate.
The package holiday industry is now a multi-million pound industry with a few large players and many smaller ones. It is best described as an oligopolistic industry (highly concentrated industry with a few large firms). For this reason oligopoly is sometimes considered as `competition among the few'.
Firms supply competing brands of a product and any action in terms of price and non-price strategies tried by one firm will almost certainly be matched by rival firms. It can be seen therefore that individual firms will be obliged to consider the effect of their actions on rival suppliers, and the possible course of action they in turn might pursue.
In the UK package holiday industry there are four firms each carrying more than a million people annually:
Thomsons 4 million people
Airtours 2.9 million
First Choice 2 million
Thomas Cook 1.05 million
with a further 411,600 people being carried by Inspirations.
It can be seen that Thomsons is the dominant firm and the market leader, with the other firms making decisions in response to Thomsons' actions.
Before considering oligopolies and their economic models it may be useful to see how these have arrived at their present market share and size. Firms may grow in several ways:
(a) horizontal Integration
(b) vertical Integration
(c) diversification We shall now look at this in context with the main players in the UK package holiday industry.
Horizontal integration
A horizontal merger (takeover) is when all organisations are at the same stage in their industry (Figure 1). From the diagram it is possible to identify that firm C has 25% of the market share in this particular industry. If firm C now wishes to grow and gain more of its share in the market it can do this in two ways:
grow internally and win more market share from its competitors;
grow externally by having an aggressive policy towards its competitors and acquiring them by means of takeovers.
If firm C expanded (grew) externally by means of taking over firm B, then it would immediately double its...