Research Paper: Market Structures and the Pricing

Pages: 9 (3056 words)  ·  Bibliography Sources: 8  ·  Level: Master's  ·  Topic: Economics  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] This market structure is also influenced by some important factors from the external environment, including political, governmental, social and demographic, economic and technological forces. Due to an extremely stiff competition in the industry, the top industry rivals (the oligopoly participants) have to use expensive advertisements and marketing campaigns in order to attract the customers towards their products. The competition also requires them to expend a large portion of their budget on Research and Development section which helps them in manufacturing innovative products according to the requirements of the customers (McConnell, Brue, & Flynn, 2009).

Pricing Strategies in different Market Structures

The competitors in each type of market structures use different pricing strategies which are either determined by the supply and demand forces or by their own control over the pricing mechanism. Pricing strategies are among the major factors which distinguish these market structures from each other.

a. Perfect Competition:

In a Perfect Competition, the customers are fully aware of the prices which are prevailing in the industry. They have to keep the prices of their products in line with the prices charged by the whole competition. If some competitor increases the price of its products in a view to increase profit margins, the customers totally reject this increase and immediately switch to other competitors' products. This thing makes it impossible for a competitor to make high revenues by charging high prices from the customers. They are simply the price takers in a perfect competition as they cannot charge prices of their own choice and have to accept the ones which are charged by other competitors. The transportation costs are also minimal as all the sellers operate in a single market and get supplies of raw material from same locations. It also facilitates equal pricing strategies by all the competitors. Generally, the competitors in a perfect market promote their products with the strength of their brand image which helps the well-established competitors in attracting potential customers towards their brands and giving a tough time to the new competitors (McEachern, 2008).

b. Monopolistic Competition:

Unlike perfect competition, the competitors in a monopolistic competition charge different prices for their products which are based on the features and quality of their products. Hence, they are not price takers in the industry. The pricing strategies used by one competitor may affect its top rivals in the industry, but they do not have any impact on the overall market structure. As the buyers have full knowledge of the pricing strategies of different competitors, they choose a brand which best meets their requirements within the available budget. In a view to attract the customers, sellers expend a huge amount on the marketing and promotional efforts for their products (Taylor & Weerapana, 2009). It puts a heavy burden on their profit margins which they have to manage by selling the products at higher rates. Sometimes, the competitors in a monopolistically competitive market act like monopolies which help them in charging the highest price for their products as compared to all other competitors in the industry. This short-term monopoly prevails when some competitor introduces some astonishing feature in its product which then becomes its core competency unless some other competitor copies this feature and ends that competitor's leadership. In the long run, no competitor can charge a high price for its products due to great competitive pressures from a large number of competitors (Boyes & Melvin, 2012).

c. Monopoly:

Being the only producer or supplier in the whole industry, a monopoly has full control over price mechanism and quality of its products or services. It is the only price setter in the industry. The prices of products in a Monopoly market structure are very high due to the absence of competition and slack control of the Government. Therefore, the pricing strategies of a monopoly firm or group are totally based on its intentions to make higher revenues with the same line of products. The customer base for a monopoly firm is also strong and stable due to non-existence of competition (Hall & Lieberman, 2010).

d. Oligopoly:

As the competitors in an oligopolistic competition produce both identical and differentiated products, the prices of these products also vary according to their features and quality. Generally, the pricing strategies of the few large competitors of an oligopoly market are based on their competitiveness in the industry. For example, if some competitor offers the best product in the market with respect to its technology, features, or design, it can charge the highest price from the consumers. However, the price range of products is set by keeping in view the social and economic forces in the country which are directly linked with the consumption patterns and preferences of the consumers. The buyers in an oligopoly market have full knowledge of the products; their quality, technology, and prices charged by different competitors. Therefore, they make purchase decisions after evaluating all the alternatives or substitute products (Gitman & McDaniel, 2009).

Market Structure of Apple Inc.

Apple Inc. -- a well-recognized name in the world's electronics, IT, and cell phone market operates in an oligopolistic market structure. It offers a wide range of products including personal computers, laptops, smart phones, music players, software, printers, digital cameras, computers and cell phone accessories, etc. Each of these products has a separate market segment to target. The overall competition in the world's electronics, IT, and cell phone market is Oligopoly in nature as there are only few large competitors that have dominated the market in each of its segments. For example, the major competitors of Apple Inc. For its Macintosh systems are Microsoft, IBM, Dell, HP, and Acer. The competitors for Apple iPhone are Nokia, Samsung, Sony, and HTC. Similarly, the competitors for other Apple products like iPad, iTunes, digital cameras, etc. also operate as top industry rivals and make the market structure purely oligopoly in nature.

In order to compete with these top market leaders from the Global electronics and IT industry, Apple gives strong emphasis on quality, features, and reliability of its products. It puts complete focus on bringing improvements in every upcoming model or version of its products which is only possible through extensive R&D. Therefore, the prices of Apple products are slightly higher than other brands due to the heavy costs of Research and Development. Apple also uses expensive marketing mediums to promote its products to the most potential target markets in the Global environment. The competitors of Apple also give it an equal competition by offering identical but differentiated products with respect to additional features and design. The pricing strategies of Samsung and Sony are the biggest threat for Apple. They have introduced equally competitive smart phones in order to compete with the revolutionary iPhone. The barriers to entry in this industry are not strict for new competitors if they also use the same technology and features in their products but sell them at a lower price in order to establish their presence. In the presence of a high oligopolistic competition, Apple has successfully managed to maintain its market leadership which can be attributed to the competitive design, technology, and reliability of its products and a strong brand image in the eyes of its stakeholders.

Conclusion

The level of competition in an industry defines the type of its market structure. The four major types of market structures vary with respect to the number of buyers in the industry, demand and supply forces, barriers to entry, governmental policies, and pricing strategies used by the competitors to compete with each other. The perfect competition prevails when there are a large number of small and large-scale competitors in the industry offering identical products. The pricing strategies in this type of market structure are based on the demand and supply factors for the products. The second type, monopolistic competition exists when the products offered by a large number of competitors act as substitutes for each other. The pricing strategies are designed according to the level of differentiation which is done to distinguish the products from their substitutes. Monopoly is a rare form of market structure where only one firm or a group holds the full control of the market. The pricing strategies, supply, and quality of the products is decided by the monopoly firm itself. The fourth form of market structure is Oligopoly which constitutes a few large competitors that make up the entire competitive environment in the industry. They set prices for their products according to the level of acceptability by their consumers and the expenses which they incur to produce and market these products.

References

Boyes, W.J., & Melvin, M. (2012). Economics, 9th Edition. Mason, Ohio: South-Western Cengage Learning

Gitman, L.J. & McDaniel, C.D. (2009). The Future of Business: the Essentials, 4th Edition. Mason, OH: South-Western Cengage Learning

Hall, R.E., & Lieberman, M. (2010). Micro Economics: Principles and Applications, 5th Edition. Mason, OH: South-Western, Cengage Learning

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