When it comes to the business world, even though there are many market structures only four main market structures that are generally utilized. These market structures are as follows:
perfect competition, monopolistic competition, oligopoly, and monopoly. Here we are going to look further into each of these market structures and define them, as well as look into the pricing strategies which each of them use. Towards the end of the paper there is going to be a real life case study which will review these market structures and pricing strategy which will provide a better understanding of how this works.
In the world of business and economics, marketing structures are considered to be the structures that assists to connect buyers, sellers, products and services to one another. Some of the elements that market structures connect and work with are production levels, different forms of competition, different forms of products and services, ease of entry and exit from the marketplace, buyers, sellers, and even the agreement between agents. To look further into the different pricing strategies, there is a need to understand basic market structures, which are perfect competition, monopolistic competition, oligopoly, and monopoly.
Perfect Competition
Perfect competition occurs when there are many buyers and sellers, no particular barriers to entry or exit, and also when the products or services that are traded are considered to be identical. When it comes to perfect competition, many economists are not believers in that this is actually possible due to the fact that there are many barriers for entry, there are very high costs in order to start up a business, and there are also strict government regulations that make it pretty difficult for a company to enter and exit an industry.
According to Masibo (2016), the pricing strategy for the perfect competition market structure involves the demand and supply curves of the product, and will also show the amount that the consumer is capable and willing to purchase. The supply curve also shows what the supplier is capable of and willing to supply within the market price. The pricing strategy for perfect completion has to be equal when it comes to the supply and what the consumers can pay. He describes this as the marketing being in charge of what the product or service price should be, and as long as the production cost is below the revenue then this market structure can continue to function properly.
Monopolistic Competition
Monopolistic competition can be described as the market that is often similar to the perfect competition in that it has many small companies that are competing within the market which ends up leading to a monopoly power for each individual producer (Monopolistic Competition, 2013). Monopolistic competition can also be identified as being the market structure that has product differentiation (Samuelson & Marks, 2014). Examples of a monopolistic competition market would be any type of small business, independently owned businesses, and even high-street stores and restaurants (Monopolistic Competition, n.d.). In this type of market, companies are given the freedom to enter or leave without any barriers. An example of a company that would fall under this type of market structure would be Nike. Many think Nike would fall under a monopoly market structure, but according to ……..
When it comes to the pricing strategy for the monopolistic competition market structure, the company typically sets their own product prices. This means that each small business or independently owned business would make their own decisions on the pricing and production costs. In order for the company to set the right price for their product, it would be ideal for the managers to do some research ahead of time to find out what their competitors are selling a similar product for. In order to help the product or service sell, the company can use their own logo and brand in order to help with marketing and advertising (Masibo, 2016). Marketing and advertising are critical for this type of market structure due to the fact that competition with others is usually very tough.
Oligopoly
Oligopoly is the market that typically falls in the middle of the perfectly competitive and the monopolistic markets. This is when a smaller number of large companies tend to take over the market (Samuelson & Marks, 2014). Some examples of oligopolies would be the national mass media outlets such as Rupert Murdock’s News Corporation, Viacom, CBS Corporation, Walt Disney, and NBC Universal because there aren’t many of these companies, but they rule the mass media market (Kramer, 2018). Another example would be the auto industry with Ford, GMC, and Chrysler being very dominate in the automobile market (Kramer, 2018). Later the case study of Apple and Google will also be looked at, as these two companies are a great example of an oligopoly market structure because together they dominate the smartphone market.
With the Oligopoly market structure, the prices of products and services are usually set by the company’s competitors surprisingly (Masibo, 2016). This means that the company and their managers must do thorough research in order to see what their rivals are charging for a product, and ultimately attempt to match it or price it where they can be competitive in the market against the other firms. One way that companies in this market structure keep their power, is by causing there to be barriers to entry. For example, this might look like the oligopolies making their market too costly or difficult for new businesses to enter into the market (Oligopoly, n.d.). While this may seem like a dirty trick, it keeps the larger and more powerful companies running because newer firms can’t compete with these types of pricing strategies due to the fact that many people wouldn’t know their brand just yet and they haven’t built trust with many customers.
Monopoly
A monopoly is typically when there is one company, or firm, that is very dominate and doesn’t usually have many competitors, which provides a lot of power (Samuelson & Marks, 2014). One example of a company that is on its way to becoming a monopoly is Netflix because the company has roughly 50 million subscribers, and even with their other competitors they still come out on top (Chirila, 2015). Other examples of companies that fall under this market structure are Google, Facebook, and Microsoft (Chirila, 2015). These companies are great examples of what a monopoly looks like, because Google controls more of the web search on the internet than Yahoo, and Facebook is the main social media outlet that adults are using for their connections. This doesn’t mean that other companies aren’t in the mix of a particular market, but it just means that there is a more powerful company that is usually dominating most of the market.
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