Essay on Product Differentiation

An oligopolistic market is one that has several dominant firms with the power to influence the market they are in; an example of this could be the supermarket industry which is dominated by several firms such as Tesco, Sainsbury’s, and Waitrose etc... Furthermore an oligopolistic market can be defined in terms of its structure and its conduct, which involve various different aspects of economics.

To compare pure competition to a monopoly we must understand the definition of both and what they provide to the market. A pure competition can be look at as a free market where the consumer has many options to choice from and there is a lot of competition within the market, which helps the consumer both in price and in quality. Many identified that pure competition is the standard to gauge the market for performance. While in a monopoly, there is no opposition to provide the best or cheapest product to the consumer. In a monopoly, the consumer is at the will of the manufacturer. A monopoly has control over the whole sector involve a product. No competition usually pays off in high price and more profits. The consumer is the one that

Monopolies are defined as an industry dominated by one corporation, or business, like standard oil. They are a main driver of inequality, as profits concentrate more on wealth in the hands of the few.(Atlantic). A monopoly has total or nearly all control of that industry. They are considered an extreme result of the U.S. free market capitalism. The business own everything, from the goods to the supplies to the infrastructure. This company will become big enough to buy out other competitors or even crush their competitor by lowering their prices to get the other business to go out of business. They will then control the whole industry without any restarted, having the prices be what they want and the product to be in what condition they want

Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. For instance, stores that sell different kinds of apparel; eating places or markets that sells a variety of food. You can even think about sporting goods and alcohol. These are items that may be similar to a certain extent, but totally different in terms of perception because of the brands, and how they are marketed. When merchandise is unique, firms can have a mini-monopoly on a certain style or a certain brand. However, the companies that make these products have to compete with other brand names. The term monopolistic competition captures this mixture of mini-monopoly and tough competition.

A monopoly is distinguished from a monopsony, in which there is only one buyer of a product or service; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations such that one or a few of the entities have market power and therefore interact with their customers (monopoly), suppliers (monopsony) and

An oligopoly is “a market situation in which relatively few sellers [like Burger King, McDonald’s] compete and high start-up costs form barriers to keep out new competitors [like Five Guys Burgers and Fries]” (Boone and Kurtz, 2012, p. 80). Within this competitive fast food burger industry, the main product being offered is a hamburger.

There are four types of market structures: Monopolistic Competition, Monopoly, Oligopoly, and Perfect Competition. Monopolistic Competition is also known as competitive market. In this market structure, there are a large number of firms that produce similar but somewhat differentiated products for the same target customers. The market share is also divided among large number of firms making it difficult for one firm to become the market leader. On the other hand, Monopoly is a type of market structure in which only one firm controls the whole industry. There are strict barriers to entry for new firms due to governmental restrictions or the monopolistic power of the firm itself. In Oligopoly, the whole industry is dominated by a few large scale firms that set prices, introduce innovative products, and use heavy campaigns to attract buyers. All other small scale firms follow the changing market patterns set by these oligopolistic firms. Lastly, perfect competition is a market structure in which there are a larger number of firms that produce similar as well as differentiated products for

Firms within the fast food industry fall under the market structure of perfect competition. Market structure is a classification system for the key traits of a market. The characteristics of perfect competition include: large number of buyers and sellers, easy entry to and exit from the market, homogeneous products, and the firm is the price taker. Many fast food franchises fit all or most of these characteristics.

An oligopoly exists when a few firms control most of the industry. There are many industries in the American economy that are controlled by oligopolies. The automotive industry, Smartphones, cellular service providers, film companies, and toothpaste are all industries considered oligopolies. Each of these industries is dominated by just a few corporations. To the average consumer, it can sometimes be unclear just how much a single corporation controls. Companies will regularly merge under one parent company yet retain their individual names. This leads to the appearance of choice yet, no matter what, our money is going to one of the same few companies. Due to the amount of control these corporations have over the industry, they can often behave in an almost monopolistic

The allocation of resources has been long debated by society, the government and economists. The pay gap between the rich and poor continues to grow and to accommodate this there are taxes, government restrictions and policies. The economic pie is never equally divided and wont be in a capitalist economy however, trying to narrow the gap between the rich and poor will overall be beneficial to society. Thus, the two rules of fairness come into play, ‘it is not fair if the result isn’t fair’ and ‘it’s not fair if the rules aren’t fair’.

The strong competition among rivals pursuing a similar strategy is vastly based on product differentiation and a niche market attraction, as companies are constantly working to surpass their competitors and seek to provide just what certain consumers want.

While a monopoly usually involves one firm with significant control on the market, an oligopoly contains a few firms. An oligopoly is a market structure where a few companies selling identical or differentiated products control the marketplace. The few players in an industry are usually quite large compared to the market for the product, thus giving these few players an advantage at market control. There are barriers to entry in oligopolies that include patents or government grants, ownership of resources, cost prohibitive barriers, brand equity and diminishing average cost.

A third factor that actually classifies the structure of the fast food market as monopolistic competition and not oligopolistic is the fact that though the fast food industry implements non-price competition through coupons, promotions and advertisements, the industry also experiences price wars. There is no tendency to keep prices fixed within the fast food industry. Oppositely, there are constant price wars between fast food competitors (AmosWEB). In 2008, Taco Bell began offering products at prices ranging between $0.79-0.99 in order to undercut the dollar menus at McDonald’s and Burger King. Wendy’s has taken on a similar strategy, offering a double hamburger for one dollar. Many companies are following this trend in congruence with their competitors and this is creating a possibly detrimental price war (Motley Fool). These price wars have led to losses for many fast food companies trying to keep up with their leading competitors’ dangerously low pricing. The giants of the industry can afford to set their prices extremely low; however, companies such as CKE Restaurants Inc. are experiencing large losses in 2010 due to their inability to price as low as front-runners, including McDonald’s and Burger King. Due to the damaging price wars, “CKE Restaurants Inc. (CKR) recently reported a loss of 6 cents per share for the first quarter of fiscal 2011” (Seeking Alpha). Prices remain fairly rigid within an oligopolistic

Firms within the fast food industry fall under the market structure of perfect competition. Market structure is a classification system for the key traits of a market. The characteristics of perfect competition include: large number of buyers and sellers, easy entry to and exit from the market, homogeneous products, and the firm is the price taker. Many fast food franchises fit all or most of these characteristics.

Differentiation can be achieved in a variety of ways: unusual features, responsive customer service, rapid product innovations, technological leadership, perceived prestige and status, appeal to different tastes, and engineering design and performance. Methods of controlling costs, however, may be limited. The ability to price differentiated products competitively will be important for reducing upward pressure on customer prices so that they do not exceed the level customers are willing to