Study
CONTENTS
Introduction 3
Question 1 – Market Structure Definitions 4
Question 2 – Unique Resources of Quasar Computers 5
Question 3 – Oligopoly and Competition 6
Question 4 –Porter’s Generic competitive strategies for different types of the market 6
Question 5 – Porter Five Forces Ranking and Attractiveness of Perfect Competition for Computer Industry 8
Conclusion 9
References 10
Introduction
Throughout the history of the humankind, different markets have been tested by the economies (Frank, 2008). Despite the fact that advantages of ones and deficiencies of others types of market have been respectively eulogized or vigorously criticized by the different scholars, the practice ultimately revealed that there is no impeccable form of competition (Colander, 2008). In addition, the commentators ascertained that the type of economy is an essential determinant of the market competition form (Goodwin, 2009). Yet, in order to be an effective marketing professional, understanding the peculiarities of each kind of a market structure is indispensable, especially in the light of the fact, that they are dynamically mutating nowadays (Chamberlin, 1937). For example, the market of videogames has been traditionally associated with dominance of the four market behemoths – Valve, Sony, Microsoft and Nintendo. Some scholars observe that it is a dogmatic example of contemporary international oligopoly. However, the technology is so dynamically evolving that it high computational power becomes affordable and available to the small companies as well. As a result, within several year the market of video games can take ‘pure competition’ dimension. Thus, a competent and efficient marketing manager should be always on alert to the mounting challenges of the market (Frank, 2008).
This paper pursues multifold objectives. Firstly, its aims at providing a comprehensive definition of each type of a market structure and identifying unique characteristics of each. The second part of this paper explores competitive advantage/unique resources possessed by Quasar Computers in the monopolistic market structure, and explains the tactics, which may be employed by a company, if its patent for a unique invention expires. The third section of this research evaluates the methods of competition in oligopoly market environments, specifically focusing on the possibility of using different elements of the marketing mix. The fourth part of the paper explains how each Porter’s Generic Strategy should be applied to each type of a market structure. The final part of the paper evaluates each of the Porter’s Five Forces and attempts understanding whether a perfect competition scenario is attractive for the computer industry.
Question 1 – Market Structure Definitions
The economists agree that there are four major types of a market structure nowadays:
Monopoly refers to the situation, when there is a company, which is the only supplier of a specific commodity (Goodwin, 2009). Thus, the key characteristics of a monopoly market structure are lack of competition and unavailability of the substitute products. In addition, because there are no natural restraints, unless the government intervenes, the chances are high that a monopolist will fix exorbitantly high prices. Another key feature of this market type is that the industry stagnates in terms technological growth, because the producer is not interested in making its product better as long as the demand persists (Colander, 2008).
Monopoly should be distinguished from monopolistic competition. The second refers to the type of competition, where many producers sell substantially different products, so that substitute products are not available on the market (Goodwin, 2009). Thus, the key feature of this system is that the companies always accept the prices charged by its suppliers, while completely disregarding the impacts made by its own prices on the customers.
Oligopoly is a form of market competition, when there several producers (sellers) in the industry (Frank, 2008). The practice shows that sometimes there is a collusion between the oligopoly communities, which results to increase of prices. Because there are only few producers or sellers on the market, the action of one usually affects decision-making of another. Oligopolies have several distinct characteristics. Thus, the prices on this market are determined by the sellers rather than by the customers. The number of sellers/producers is not significant. The market entry barriers are very high for the new entrants and include various government licenses, accessibility of technology, economies of size and of scale (Kiechel, 2010).
Perfect competition is the most desirable form of a market structure . It promotes economic growth, technological development, creation of the employment opportunities and growth of trade. Thus, perfect markets are characterized by the following aspects. Firstly, there is a big number of sellers and buyers on the market. Secondly, the market participants are perfectly informed about the products and the prices. Thirdly, the existing and the emerging products are homogenous, i.e. there is the number of substitute products is significant. The fourth important element of this market system is that the barriers to market entry and exit are non-existent. The price is formed by the market, not by the producers or sellers. A critical distinctive feature of such markets is that the buyers tend to make their market decisions on a rational basis, i.e. comprehensively analyzing the correlation between price and economic utility of the products (Goodwin, 2009).
Question 2 – Unique Resources of Quasar Computers
In monopolistic market scenario, the key advantage possessed by Quasar Computers is the technology of producing unique microprocessors. Because no other company can produce similar computers from a technological viewpoint, Quasar Computers receives monopolistic advantage on the market. Yet, if a competitor of the company becomes knowledgeable of the technology used by Quasar, the only way of preserving its dominant position on the market for Quasar Computers will be to rely on the system of intellectual property rights, such as patent and trade secrets protection. However, the duration of technological patents is limited to twenty years only, meaning that when it expires, anyone will be allowed to use this technology. For some companies it is very discouraging, however, there is a loophole from this quandary. Some essential elements of the product may be protected as ‘trade secret’, which has no expiration date. Despite the fact that the details of the invention should be explained to the USPTO in order to get a patent, it is possible to preserve some other elements secreted. Thus, no one will be capable of making an imitation, even though the main scheme of a creation appears in the public domain.
In addition, effective and efficient decision making, which a critical aspect of any business (Rogers & Blenko, 2006) is another key advantage of Quasar Computers. The practice shows that the ability to take correct market decisions under the tight market conditions is an important advantage on today’s marketplace.
Question 3 – Oligopoly and Competition
The practice demonstrates that the assumption that in oligopolies the companies tend not to compete on prices is justified (Frank, 2008). Beating each other with prices may result in bankruptcies of all members of the market. Competition with products is possible (Harvard University, 2011). When a viable substitute product is developed by a member of oligopoly and other market players cannot imitate it, this member can become a monopolist, if the newly created commodity is a better alternative to the customers, than the existing offers. The possibilities of placing and promotion depend on the type of oligopoly. Thus, if it is a collusive oligopoly, a sort of agreement between the market players exists. The market is divided between them, and, in the absence of new market entrants, increasing advertising budgets, or entering other segments is not financially justified. Yet, if the case deals with competitive oligopoly, the market players can adopt different placing and promotional techniques to increase their market share.
Question 4 –Porter’s Generic Strategies for different types of the market
There are many competitive strategies to pursue competitive advantage in the market segments. Yet, the most comprehensive system has been developed by Michael Porter. Thus, the coalescence of practice and theory clearly demonstrates that by modifying and combining cost leadership, price and product differentiation methodologies, the companies can increase their market share practically in any type of the market (Porter, 2010).
Thus, for oligopoly it is fundamentally important to consider the fact that the market players are closely interdependent, i.e. the action of one company always impacts the affairs of another one (Kiechel, 2010). For instance, if a member of oligopolistic petroleum market in the United States Texaco decides to reduce price, this market step may lead to a resultant reduction of the two major competitors – Shell and BP. In order to choose an appropriate Porter Generic mechanism, oligopolistic companies have to decide whether to compete with rivals, or to enter into collusion with them (Porter, 2011). If the first model is decided on, then, then product differentiation appears to be a justified tactic. Cost leadership is rarely used in oligopoly markets, because the outcomes of concurrent price reduction (the competitors will definitely retaliate by lowering theirs as well) may be ruinous for all members of the market. Yet, product and services differentiation is a popular and effective strategy for the oligopolistic companies. A good example in this context is Daimler’s Mercedes Benz. Its competition with Aston Martin or Ferrari is limited to the development of new brands, improving the existing products and adding new features. Yet, the price range for its products remains constant.
In monopolistic competition, many manufacturers produce goods or render services, which are substantially different (Goodwin, 2009). In such type of the market, it is sometimes difficult for the consumers to distinguish between different types of products. Thus, the only method of attracting attention of the prospective buyer is to differentiate the range of range of products of services. Lowering prices is not justified in this type of the market, because for a producer does not have competitors in his particular segment. Additionally, the practice shows that the market players in monopolistic competition do not take into consideration the competitors’ prices, while also they neglect the impact of their own prices on other companies. Planning is not important for these companies (Kaplan & Norton, 2007)
In perfect competition, the both forms of Porter Generic forces may be applied. The companies manufacture homogenous products, which can easily substitute each other. Furthermore, the buyers behave in a rational manner, basing their decisions on economic utility principle. Therefore, the companies operating in this economic system are free to apply cost leadership and product/service differentiation strategies, depending on a specific market scenario. In reality, perfect competition market players use the combination of both strategies.
Question 5 – Porter Five Forces Ranking and Attractiveness of Perfect Competition for Computer Industry
Bargaining Power of Buyers – very high
The practice shows that profitability of the companies is mostly determined by purchasing power of its customers. The situations, when the clients have no money (e.g. during economic depressions) or have no choice, but to buy (e.g. the products of pharmaceutical companies, or defense attorney services) critically determine successfulness of a company.
Bargaining Power of Suppliers – medium
Despite the fact that in some situations the impact of suppliers influence may be critical, the practice shows that when the dependence on them becomes too heavy, a company can always change its market orientation or type of products.
Threat of New Market Entrants – low
Practically in any industry new market entrants regularly appear, while unsuccessful companies leave it. It is a natural process, and any changes in the number of those who enter or those who leave almost do not affect those, who operate in a perfect competition market.
Threat of substitute products – medium
There is always a chance of substitute products appearance on the market. In perfect competition, a successful substitute product can destroy a business. Yet, skilled and professional management is always ready for such changes of the market.
Industry Competitors – high
Effective marketing activities of a competitor can supplant a company from the market. The only reason why the firms go bankrupt is lack of sales, and successful competitors can make this scenario realistic.
Perfect competition is an ideal environment for the computer industry. Competition urges innovation, because the companies continuously explore new ways of attracting customers. They hire the best engineers and marketing experts. By outperforming the rivals, companies become stronger and its staff gains vital market experience.
Conclusion
Secondly, different market types require different competitive approaches. Thus, in cost leadership is not recommended in oligopolies, as it may result in heated ‘price wars’, which may make bankrupt all market participants in the long run.
Finally, among Michael Porter’s Five Forces bargaining power of customers and intensiveness of competition appear to be the most important aspects. While other aspects of this framework are more or less manageable, changes in the customers’ purchasing power or particularly effective marketing activities of the competitors can destroy even a successful business venture. Thus, while it is important to stay focused on all five forces, these ones should be particularly accentuated by the managers.
References
Kaplan, R.S. & Norton, D.P. (2007). Using the Balanced Scorecard as a Strategic Management System, in Harvard University. (2011). HBR's 10 must reads on strategy. Boston, Massachusetts.
Rogers, P. & Blenko, M. (2006). Who Has the D? How Clear Decision Roles Enhance Organizational Performance, In Harvard University. (2011). HBR's 10 must reads on strategy. Boston, Massachusetts.
Porter, M. (2010). The Five Competitive Forces That Shape Strategy, In Harvard University. (2011). HBR's 10 must reads on strategy. Boston, Massachusetts.
Porter, M. (2011). What Is Strategy? In In Harvard University. (2011). HBR's 10 must reads on strategy. Boston, Massachusetts.
Frank, R. (2008). Microeconomics and behavior. Boston: McGraw-Hill Irwin.
Kiechel, W. (2010). The lords of strategy: the secret intellectual history of the new corporate world. Boston, Mass: Harvard Business Press.
Colander, D. (2008). Microeconomics. Boston, Mass: McGraw-Hill/Irwin.
Goodwin, N. (2009). Microeconomics in context. Armonk, N.Y: M.E. Sharpe.
Chamberlin, E. H. (1937). "Monopolistic or Imperfect Competition?” The Quarterly Journal of Economics 51 (4): 557–580
