For this assignment, you will be building upon your Module 2 SLP by continuing to examine other businesses in your chosen industry. Remember that the other businesses you wrote about in your Module 2 SLP will be your future competitors if you decide to open your own business. So it is important to get an idea of the competitive landscape of your chosen business. After reviewing the required background readings and doing some more research on your chosen industry, write a three-page paper discussing the following issues:
1. What market structure is there for this line of business in your home town? Is this a monopoly, oligopoly, monopolistic competition, or perfect competition? Justify your answer using both your own research on this type of business in your home town, and by referencing some of the required background readings on different types of market structures.
2. Now that you have examined market structure of your chosen industry in your home town, do some research on IBIS World on market structure in this industry nationwide. You can access IBIS World by going to the main page: https://www.ibisworld.com/
3. What information could you find regarding how concentrated or how competitive this industry is?
4. Based on the information you found for Question 2, what market structure do you think best describes this industry nationwide? Is this a monopoly, oligopoly, monopolistic competition, or perfect competition? Explain your answer using both information from IBIS World and the concepts from the required background readings.
When a business opens in an economic market, it is bound to fall into a structure category determined by the interconnected characteristics of market components, for example, competition and demand that make up the market structure (Beveridge, 2013). Each of the market structures has interconnected components such as the number of buyers and sellers, the strength they have and the degree of collusion among them (Mjmfoodie, 2009). Other factors that define the structure that a business may fall into is the forms and levels of competition from similar businesses, the ease of business to enter and leave the market as well as product differentiation (Beveridge, 2013). Market structures include; monopolistic competition, perfect competition, monopoly and oligopoly market structures (Taylor, 2004).
By studying and analysis the market in my hometown, I understand that the market structure for the consumer electronics business is a perfect competition/pure competition. Being a relatively big town, there exist some consumer electronics providers, each of them serving their customers differently, with individual market shares. Being businesses that sell already manufactured products, the consumer electronics business in the area sell the same products from many different companies, both from abroad and from local manufacturers. The stores stock identical/homogenous products mainly because they get their products from the same manufacturers both in and outside the country. The consumer electronic providers in my hometown don’t have the power to control the prices in the market but take the price that is already in the market mostly because they get the product from the same manufacturers who may end to stabilize the prices and also because demand and supply determine the pricing.
Each consumer electronic business in the area has a relatively small market share as providing the similar products limits with their competitive advantages. The market for electronic products in my hometown has many buyers and sellers, who have full knowledge of the market and the products including the prices hence they cannot be manipulated easily. Having some players, who don’t affect each other in any way, the consumer electronic business get the advantage of their entrance and exist in the market, as their market operations don’t get controlled by any other business. By looking at the points above, it is clear that the market is a perfect competition structure (Mjmfoodie, 2009). The market structure is good for the store as the homogeneity of the products will call for little or no advertisement by the business hence saving on running costs (Beveridge, 2013).
At the national level, the components in the market including size changes and so the market structure also change, for example, change the behavior of buyers and sellers and the level and form of competition. According to “Market Research Reports | Procurement Research Reports | IBISWorld US,” (n.d.), there are quite some companies that manufacture electronic products, for instance, LG and Sony at the national level. Therefore, there also exist a good number of small businesses that retail the products from the specific companies. Though different businesses may be retailing products from the same manufacturer, they may also differ in many ways, such as in size and capacity, and the small companies tend to find it harder to survive large markets compared to big businesses. The original producers mostly have their outlet businesses where their products are sold exclusively at their price and hence may affect the market price of the same product in different shops quickly.
From the information obtained from “Market Research Reports | Procurement Research Reports | IBISWorld US,” (n.d.), I understand that on in the national market, the consumer electronic business falls under monopolistic competition (Mjmfoodie, 2009). In the regional market there exist scores of buyers and sellers compared to the market in my hometown. The businesses can quickly get and out of the market and have product differentiation. The companies because of the differences in the market, for example, size and capacity, get to determine the selling price of their products and it being such a significant market makes it hard for people to have flexible mobility, characteristics that define a monopolistic market (Keyes, n.d.). In the national market level, the number of firms that offer products from the company’s increases with many of them focusing on retailing a particular product from a specific company (Mjmfoodie, 2009). Because my business combines products from different manufacturers, it may prove hard for it to match the bigger businesses selling products individually from particular businesses or those big in capacity (Keyes, n.d.).
In conclusion, it is clear that the market structure present in a particular market determines the type of strategies to be used for the business to run efficiently. In different market sizes, the business faces a different market structure, because of changes in the components that characterize market structures, for instance in a small market size, a firm may face a few forms of competition, compared to large market sizes. Learning of the market structure in a particular market concerning a business that one wants to open makes it easy for them to understand and put down the best strategies useful for the efficient running of their business.
Beveridge, T. M. (2013). Chapter 8: Between perfect competition and monopoly. A Primer on Microeconomics. [New York, N.Y.] [222 East 46th Street, New York, NY 10017]: Business Expert Press.
Keyes, L. S. (n.d.). Monopolistic Market Structures and Stabilization. The Quarterly Journal of Economics, 66(3), 436. Doi: 10.2307/1885313
Market Research Reports | Procurement Research Reports | IBISWorld US. (n.d.).
Mjmfoodie. (2009, August 1). Episode 25: Market Structures.
Taylor, T. (2004). OpenStax CNX.