Best Buy operates in an oligopolistic market where there are significant barriers to entry and few large firms dominate the market by selling identical goods. Best Buy is a non-collusive oligopolist, existing in a strategic environment where firms do not cooperate, yet are interdependent due to the fact that a firm’s action affects the market. Recently, Best Buy experienced an increase in demand, increasing its revenues and profits. Figure 1: Costs, Revenues, and Profits of Best Buy Due to the fact that Best Buy is non-collusive, they face a kinked demand curve that ultimately determines the firm’s relative market share. The demand curve consists of an elastic and inelastic portion. Oligopolies avoid both portions, where in the elastic portion, competitors keep prices low to steal customers, and the inelastic portion where price war occurs since competitors also lower prices, resulting in no gain in demand. The consumer demand for electronics grew, leading the demand curve to shift right as shown in Figure 1. Therefore, there is an increase in total revenue(P•Q=TR) of 1% to $8.53 billion as well as abnormal profit from area a to area a+b(a x 1.12), 12% rise in earnings. Best …show more content…
In Figure 2, Amazon’s ATC is less than Best Buy’s ATC. Since ATC is the sum of AFC(average fixed costs) and AVC(average variable costs), Best Buy’s costs are higher than other online stores. Best Buy operates several branches which consists of explicit costs(rents and taxes), so their abnormal profit is smaller, represented by area x, whereas Amazon has lower ATC, enabling them to sell at a lower price, resulting in greater abnormal profit of x+y. Though in the short run online store competitors experience a loss in market share(due to Best Buy’s increase in market share), they have an advantage in the long run due to lower
As we all know, customers naturally prefer a lower price of the same product, and ALDI can provide same or higher quality products with lower prices than its competitors. ALDI realizes lower costs of its products by cutting down its rent, energy costs, labor costs, and other unnecessary expenses, such as credit card discounts, and etc. Therefore, the choice of lower price makes the bargaining power of ALDI’s customers weak. What is more, ALDI’s buyers are fragmented and don't not have a creditable backward integration threat, which means no buyer can have any particular influence on ALDI’s market since the purchasing volume is only the tip of an iceberg. Hence, the not concentrated buyers also weaken the bargaining power of ALDI’s
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
Wal-Mart, a "Big-Box Retailer" employs more than 2.1 million associates worldwide and has two-thousand seven-hundred stores in the United States with many more in Argentina, Brazil, Canada, Central America, Chile, China, Germany, Japan, Korea, India, Mexico, Puerto Rico, and the United Kingdom, making Wal-Mart the largest retailer in the world. "Wal-Mart accounts for upward of 30 percent of U.S. sales, and plans to more than double its sales within the next five years" (Lynn 29-36). Why is Wal-Mart so successful, and is Wal-Mart actually bad for America?
Firm= AT&T Wireless-Oligopoly market structure=There are a very limited number of sellers, and immense number of consumers that demand goods and services. There are a small number of large firms that dominate/lead the industry. http://www.buzzle.com/articles/oligopoly-examples.html
In the Beverage Industry Coca-Cola owns approximately 42% of the Industry where as Pepsi Co. owns approximately 30%. Since 1886, Coca-Cola has been present in the market where as Pepsi Co. entered the market 13 years later. Oligopolies perpetuate themselves and discourage new investments in several ways. One example is having access to key resources, whether it’s natural resources or patented process or special knowledge. This creates difficulty for new firms to enter the industry without access to those resources. In addition with experience of keeping cost low, oligopolies benefit significantly in cost advantages which discourages new firms from entering. An example of this would be a new firm attempting to attract new consumers with a new product rather than an established product. With having an established product oligopolies are able to obtain lower prices from supplies thus allowing them to create predatory pricing aimed at driving smaller competitors out of business. Since they are the two dominant market holders in the Beverage Industry they acquire most of the sales volume. This allows the companies to reduce prices on their products to discourage new firms to continue as they will have to follow the trend. In contrast they increase prices to remain in the market and protect their industry from the expansion or interest of other
Large players can offer competitive prices if they buy in bulk. Smaller players can differentiate themselves by offering niche products and superior customer delight at a premium price.
The roots of Best Buy Co., Inc. can be traced back to St. Paul, Minnesota. This is where founder Richard Schulze opened the doors of his Sound of Music store in 1966. Understanding a demand for consumer audio components and systems in the St. Paul area, Schulze managed to provide a combination of great prices and excellent service, thus building a strong customer base, which quickly prompted an expansion into home appliances and video products.
Wal-Mart’s competitive environment is quite unique. Although Wal-Mart’s primary competition comes from general merchandise retailers, warehouse clubs and supermarket retailers also present competitive pressure. The discount retail industry is substantial in size and is constantly experiencing growth and change. The top competitors compete both nationally and internationally. There is extensive competition on pricing, location, store size, layout and environment, merchandise mix, technology and innovation, and overall image. The market is definitely characterized by economies of scale. Top retailers vertically integrate many functions, such as purchasing, manufacturing, advertising, and shipping. Large scale functions such as these give the top competitors a significant cost advantage over small-scale competition.
Because there are few firms in an oligopoly industry, each firms output is a large share of the market. As a result, each firm's pricing and output decisions have a substantial effect on the profitability of other firms. In addition, when making decisions relating to price or output, each firm has to take into consideration the likely reaction of rival firms. Because of this interdependence, oligopoly firms engage in strategic behaviour. Strategic behaviour means when the best outcome of a firm is determined by the actions of other firms.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
Although Amazon has been active trying to find the perfect strategy to make profits, the numbers in its financial statements had not shown the most optimal results. We have discuss that even though its strategies have been right according to supply chain and logistics methodologies and theory, something had been missing to represent this successful strategies into financial results. It is seen that Amazon had spent too long time finding the right strategy which the last might be the one because in the financial statements profits started to come up. Amazon still have a long way to go to mature its strategy and represents it into profits for its shareholders.
Rivalry among established firms is fierce. There are several factors that illustrate this: established market players (6.1). The product is highly standardized and the switching costs of the customers are low. Players are aggressive (6.2)
The. An oligopoly is a market structure characterised by few firms and many buyers, homogenous or differentiated products and also difficult market entry (Pass et al. 2000) an example of an oligopoly would be the fast food industry where there is a few firms such as McDonalds, Burger King and KFC that all compete for a greater market share. In a Monopoly, there is one firm that controls the market, and there are no similar products being sold by other companies. Advertising is therefore used to encourage people to buy more of their product. In a monopoly there is a downward sloping demand curve, the reason for this is that a firm must lower the price to sell an extra unit of their product.
Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product (or service) at its price.
A monopoly is “a single firm in control of both industry output and price” (Review of Market Structure, n.d.). It has a high entry and exit barrier and a perceived heterogeneous product. The firm is the sole provider of the product, substitutes for the product are limited, and high barriers are used to dissuade competitors and leads to a single firm being able to ...