Unit 3: Oligopoly in action

1. A few summers ago, a friend and I spent three weeks travelling around the island of Bali in Indonesia. For six of those days we rented a jeep and circumnavigated the island. Our first stop was for two days of scuba diving in the northeast region of Ahmed.
   
   As we drove along the seven beaches near Ahmed, we observed there were around ten dive operators offering packages for the local dive spots (including one of Asia’s most famous dives, the WWII-era USS Liberty wreck).
   
   Based on our Lonely Planet recommendation, we settled on Eco-Dive, where we paid $60 a day for two dives and all our gear rental. We felt good about this rate and agreed that $60 was a fair and competitive price for a day of diving.
   
   Our next stop, Pemuteran, a remote and relatively undeveloped area on the northwest coast just across the straits from Java, is also known for its great diving. On our first morning in Pemuteran, we strolled along the beach and found that there were only three dive operators to choose from! And guess what, they all charged between $95-$105 for a day of diving. That’s around 60% more than the operators in Ahmed charged!
   
   In the end, we decided to do only one day of diving in Pemuteran, and elected to spend our second day there reading by the pool.
   
   Discussion Questions:
   
   What was the difference between the scuba diving markets in Ahmed and Pemuteran?
   
   Which market was more competitive? Which of the four market structures did the two markets most resemble: perfectly competitive, monopolistically competitive, oligopolistic or monopolistic?
   
   How were the dive operators in Pemuteran able to charge 60% more than the operators in Ahmed?
   
   What do you think is keeping one of the three dive operators in Pemuteran from lowering their price to, say, $60 for a day of diving? How would the other two operators respond?
   
   Would this be good or bad for the dive operators of Pemuteran?
   
   Would it be good or bad for scuba divers?
   
   Assuming that the cost of opening a dive operation was relatively low, and there were no government or other barriers to doing so in Pemuteran, what do you suspect will happen in the Scuba diving market as the tourism industry continues to develop in the remote town of Pemuteran? Explain.
   
   Which village’s dive operators do you think were more “efficient” in their use of resources? Explain.