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Imperfect Competition Market Analysis

This newspaper is talking about about the economic market structure, specifically for imperfect competition market which can be monopolistic competition market and oligopoly market. There will be explanations about definition, characteristics, and examples of monopolistic competition market and oligopoly market. You can find Dunkin' Donuts Inc. for the monopolistic competition market and Coca Cola Co. for the oligopoly market. This newspaper also will discuss about competitive strategies of Coca Cola.

Introduction

In economy analysis, people know that we now have view types of market in the living. These market types are differentiated matching to number / syndication of firm(s) in the market. Regarding to Sloman & Norris (2002), there are four types of market constructions in the practice, that are perfect competition, monopoly and monopolistic competition, oligopoly market segments.

Perfect competition market is market with sellers and customers in exchange. In this kind of market, the products that provided are generally homogenous. To get in into the forex market, there are no obstacles. Both of the clients and vendors is price taker (O'Sullivan et al, 2008), so in this market price is not the factor that can impact the sales, rather than it service is much more appealing.

Monopoly market is a market with an individual firm that provide product that does not have any close-substitutes. This condition clearly shows that this type of organization has power that will allow them as the purchase price manufacturer, since there are no close-substitutes that may be chosen by consumer to displace the utilization of the service or goods provided by the firm. Within this monopoly market there exists entry obstacles such as patent, authorities plan, etc.

Perfect competition and monopoly market will be the extreme condition in market. The other two market structures that happen to be monopolistic competition and oligopoly market is more prevalent type of market that we can see in the real life situation if they're compared to perfect competition and monopoly market.

This paper will discuss more on imperfect competition market that will be the like the monopolistic competition market and the oligopoly market, which are more relevance to the practice with the relevance and appropriate examples.

Contents

Theory

Monopolistic Competition Market

Monopolistic competition was developed by an American economist named Edward Chamberlin in 1930s (Sloman & Norris 2002). Monopolistic is a type of monopoly market; there are very number of firms' running on the market, but they create a differential product which separate them from other.

In monopolistic market, a company is freedom; means that organization in this market are hardly afflicted with their competitors work or decision, or vice versa (Sloman & Norris 2002). Businesses in the monopolistic market are offering their products through different things from their competitors; appearance, levels, technology, quality, price, etc. These differentiations of product are also called Product differentiation (Parkin, 2000).

There are no access barriers to enter into this monopolistic competition market. Barrier such as patent or government regulation is not appropriate in this market (O'Sullivan et al, 2008). Regarding to Parkin (2000), businesses possess the free entry and exit in monopolistic market. Normally if the health of the forex market is highly profitable there will be a positive transmission that invite amounts of firm to come in and the syndication of earnings will be divided to the businesses in market, but when they performance of market is low, you will see number of organization as well giving this market. The below dining tables show monopolistic market in profit and reduction time (Case & Rational, 2008):

However, over time you will see no super irregular profit for businesses in monopolistic market, since because of the signaling, companies are freely enter into and leave from the market. This is actually the long term condition graph (Circumstance & Rational, 2008):

Oligopoly Market

Oligopoly is a term that derived from the term of the Greeks which are "oligos" meaning little or few and "polein" meaning to sell. Oligopoly identifies market where there are just few firm working the business in the field. (Tucker, 2005). Not similar with monopolistic, to enter into oligopoly market is not easy to be done, since oligopoly market has the entry hurdle as monopoly market (Sloman & Norris 2002). Corresponding to O'Sullivan et al (2008), government has treatment in this market, making sure there is absolutely no bunch of businesses operating in the oligopoly industry by issuing controller such as patent and business licenses. Besides that, organizations in oligopoly market are majority competing also by advertising campaign. The expenditure cover advertising in the forex market is very high.

Not similar with monopolistic competition market, oligopoly market is interdependent. Your choice that made by firm that functioning in oligopoly will affect the other businesses that operating in the same market. In this market there will be no firm that does not consider the action used by their competitor. Most of the companies in oligopoly company compete through non-price competition. By exercising non-price competition, each oligopolist create barrier for rivals to battle an important product improvement. Below are a few types of non-price competition (Riley, 2006):

  • Free deliveries and installation
  • Extended warranties for consumers and credit facilities
  • Longer opening hours (e. g. supermarkets and petrol stations)
  • Branding of products and heavy shelling out for advertising and marketing
  • Extensive after-sales service
  • Expanding into new marketplaces or diversification of the merchandise range

In oligopoly market, the graph of demand will shows a kinked curve. The kinked demand curve model happen because of two assumptions that made in oligopoly market, that happen to be:

  • If a company rising the value, the other firms stay (not follow to raise the price)
  • If a firm cutting the value, the other firms will follow to decrease their selling price as well
  • Kinked demand curve in monopolistic market (Anonymous, n. d)

Oligopoly market has a tendency to thinks what's their competitor reaction to their new plans. To look at this oligopolist tendencies can be carried out with the overall game Theory. Game Theory is a report to analyze the strategic action depends upon the reaction of the competitor in to the new procedures (Sloman & Norris 2002). As outlined by Samuelson and Nordhaus (2005), some basic studies of game theorist in the region of imperfect competition are:

As the number of non-cooperative oligopolists becomes large, industry price and variety tend toward the properly competitive final result.

If firms decide to collude alternatively than compete, the marketplace price and variety will be close to those generated by monopoly. But experiments claim that as the number of firms raises, collusive agreements are more difficult to police and the rate of recurrence of cheating and non-cooperative tendencies increases.

In many situations, there is absolutely no stable equilibrium for oligopoly. Strategic interplay can lead to unstable benefits as businesses threaten, bluff, start price wars, capitulate to stronger organizations, punish weal opponents, signals their intentions, or simply exit from the marketplace.

In this Game Theory, gleam term called "Prisoner's Problem" that illustrate the difficulties in retaining a assistance (Mankiw, 2004). Relating to Parkin (2000), there are 3 things that require to be paid attention in Game Theory, that are rules, strategies and payoffs. The overall game theory will be illustrated as following:

A and B are trapped stealing a car, both of them were interrogated by the polices and they'll sentence for 2 years in prison. The police suspect a and B is involved in recent robbery, nevertheless they have no facts to confirm it.

Rules: A and B were put in various cabin, each advised they may be suspected involve in robbery. If both of these confess they did it, they will phrase into 3 years jail, however if one of them confess and the other one will not, the first one will only sentence for 12 months prison and the other one 10 years.

Strategies: the possible action that may be used by A and B are, Confess or refused they mixed up in robbery.

Payoffs: because there are two players and two strategies, there are four possible final results, that happen to be: Both confess, both refused, A confesses & B denies, and B confesses & A denies.

 

Company in Monopolistic Competition and Oligopoly Market

Monopolistic competition market can be came into easily, even though there are extensive competitors on the market competing in it. Food and beverage industry is also included in monopolistic competition market. In example Starbucks, McD, KFC, and Dunkin' donuts are popular in the franchise business in food and drink industry.

Dunkin' donuts is a beverage industry firm that delivers donuts and the standard coffee. Founded in 1950, today Dunkin' Donuts is the No. 1 merchant of hot and iced regular coffee-by-the-cup in America (Miranda, n. d. ). In drink industry like Dunkin' donuts we can easily see there exists quite numbers of firms are operating in the same industry such as Krispy Kreme, Starbucks, etc. Each of these companies has their own attribute that differentiate them with their challengers; such as Krispy Kreme is more concentrating in the production of donuts, while Starbucks are providing more various blended espresso. However, Dunkin's donut also has its own attribute which is providing the regular coffee with the delightful donuts or cakes.

According to Miranda (n. d. ), Dunkin' Donuts in Florida are doing very well and doing better than the other franchises in other says. Dunkin' Donuts markets 52 different donuts and greater than a dozen coffee beverages as well as bagels, breakfast time sandwiches, and other cooked drinks. Dunkin' donuts is having a robust market position. It has become the No. 1 in regular hot coffee sales, No. 1 in bagels, No. 1 in donuts no. 3 in breakfast sandwiches, and Dunkin' donut is developed with a solid and profitable franchise business design (Goumas, 2006). There is no entry barrier for those companies that wanted to come into drink market, such as J. Co in Malaysia; it's a fresh comer in the beverage industry.

For Oligopoly market you can find Coca Cola Co. which is leading in the carbonated drink industry for years. There are only a few producers in carbonated drink, this makes carbonated drink industry included in oligopoly market.

Coca Cola Co. are contained in oligopoly market, even though in the true life there is certainly quite a lot soda pops available (which may be classified into monopolistic competition), such as F&N in Malaysia. However in the practice, these carbonated beverages companies were dominated by Coca Cola Co. and Pepsi Co. for decades, this drink industry become oligopoly. Thus, for the smaller company such as F&N in drink industry has their sales in a little share and cannot be set alongside the sales of Coca Cola and Pepsi. The main rival of Coca Cola is Pepsi Co. , which has been decades rivalling in the Coke industry. In the carbonated soda industry today, Coco-Cola dominated 43. 7% of the marketplace, followed by PepsiCo. occupied 31. 6% and Cadbury-Schweppes' 15. 8% (In January 1999, the tiniest oligopolist Cadbury Schweppes PLC, sold part of its international business to Coca-Cola Co. ) ( oligopolywatch. com, 2005).

The branding and ad effort for Coca Cola and Pepsi are also competitive plus they have their own feature. For Pepsi, they always retain the services of well-known designer such as Britney Spears, Beyonce and Green to advertise their Pepsi Coke. Within the other part, Coca Cola always utilize a creative advertisement. They never stop their advertising campaign, even though they know that both of these is the first choice in the industry, because they never want to reduce one to the other.

From the number of firms on the market, the propensity that companies can go in into market and the branding & advertising campaign effort, makes the carbonated drink industry become an oligopoly market alternatively than monopolistic competition market.

Competitive Strategies of Coca Cola Co.

Advertisement and Sponsorship

Consider the long-running Coke-Pepsi feud, both Coca-Cola Co. and PepsiCo. want to made a useful foil to promote, and company created product distinctions during the competition. Through the Beijing Olympic in 2008, again Coca Cola has been the official partner for this event in previous 80 years. For Coca Cola you can find never too early to do promotion, it proven by the launching of limited edition Coca Cola Olympic edition with various languages (Baar, 2008). In December 2008, Coca Cola owning a new mobile advertising campaign in Germany and also they performed advertise in tv set that showing the Coca-Cola vehicle driving via a snowy scenery. (Khan, 2008).

Expand in Market and Product Range

Recently, Coca Cola put more work in extending their production in China. Coca Cola Co. has built 2 production herb in the less developed central and west China (The Coca Cola Company Press, 2009). Since Pepsi sales compare to Coca Cola sales in China is much larger, Coca Cola does not stop widening their aim for which is China market.

Coca Cola Co. has variety products which have been launched as the needs of the customer. As stated inside the Coca Cola Company Press (2009), Coca Cola has more than 3, 000 beverages, from diet and regular gleaming beverages to still beverages such as completely fruit juices and fruit refreshments, waters, sports activities and energy drinks, teas and coffees, and milk-and soy-based beverages, our variety spans the world.

Keep Innovative and Efficient in the Long Run

Oligopolistic competition is proved to be beneficial, because it provides continuous improvement, and means that managements would keep their organizations impressive and effective over the long run. Argued by Zachary (1999), market market leaders need challengers to keep them on their toes.

According to Weier (2009), Coca Cola Company vegetable to lunch break out Freestyle drink dispenser, in america nationwide. This dispenser have the idea of fulfill customer choice to new levels, the most interesting aspect is the technology it's built on.

Cutting Price

By doing creativity such as lunch time out Freestyle drink dispenser, it can help Coca Cola Company to do price cutting. Freestyle will become Coke's front-line robotic army for business intellect, sending massive amounts of consumption data back to the drink company's Atlanta headquarters. The dispensers gather data on what customers are having and how much, and transfer that information each night over an exclusive network to data warehouse system in Atlanta. Unique byproduct of the BI allowed dispenser is the fact Coke can try new flavors and get back almost real-time opinions on the viability of its success. It will no more have to ensemble Customer emphasis group and try it out in a 'lab'. The real world becomes the lab and the marketing office at Coke can watch consumers vote yea or nay on the viability of new product instantaneously. This not only improves the speed of responses but also makes the whole test marketing process cheaper.

Conclusion

There is perfect competition market and imperfect competition market. Perfect competition market segments are including perfect competition and monopoly market. However, imperfect competition marketplaces are monopolistic competition market and oligopoly. From the overall analysis, it demonstrates the oligopoly is the most challenging competitive structure to judge than other market constructions, because the level of competition is high whereby oligopolists fight for market talk about. Each and every move by a new player attracts retaliation. And many market structures tend towards as an oligopoly as time progresses.

In oligopoly market effort such as branding, advertising, business enlargement is very central. Since the price battle can't be done in oligopoly market, a company must be able to make movements in non-price struggle. To get the competitive advantages over time, Coca Cola need to take care about their ad and sponsorship program, producing the research and development, keep expanding their market; specially the positioning where Pepsi Co. gain increased sales compare to Coca Cola.

Coca Cola Company is one of the successful firms in oligopoly market, their work to be lifestyle on the market has leaded those to the most notable of beverage market as yet.

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