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What are the forms of industrial organisations
What are the forms of industrial organisations
Principles of pricing strategies
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Forms of Industrial Organization
Consumers are faced with making decisions about which product to buy every day. Unless consumers have a personal preference on which product to buy, they tend to base their buying decisions on price. Manufacturers control pricing based on supply and demand, but there are other factors which come into play when companies decide how much money to charge consumers. The presence of monopolies, oligopolies, monopolistic competitions, and perfect competitions allow manufacturers to manage pricing accordingly. This paper will provide an example of a company for each of the four market situations and how pricing is affected by a company's status in these markets.
Pure Competition
Pure competition is defined as "the presence of a large number of firms producing a standardized product (that is, a product identical to that of other producers
). New firms can enter or exit the industry very easily." (McConnell, p.413) Pure competition, although very rare will usually be found in markets that are selling agricultural goods, fish products, foreign exchange, basic metals, and stock shares (McConnell, p.415).
The fast food industry appears to fall inline with McConnell's perspective. Examining this industry and in particular McDonald's Corporation we find the presence of numerous organizations (Burger King, Jack in the Box, Hardees and Wendy's) that are all producing standardized products (such as fries, hamburgers).
McDonald's pays close attention to their pricing strategy because they are in such a volatile market (i.e. dollar menus, value meals, family meals). For instance, McDonald's partnered with the Seminole County (Florida) School Board to establish a program amongst its 27,000 elementary-school children. For the 2007-2008 fiscal year the children into this program will bring home 4 report cards during that period. For "children who earn all A's and B's, have two or fewer absences or exhibit good behavior are entitled to a free Happy Meal at a local McDonald's-so long as they present their report cards." (York, Emily Bryson) With the fast food industry being under constant pressure by health leaders, McDonald's Corporation and their franchisees are in constant need to rethink their pricing and marketing strategy by upgrading menus (for instance, salads, fruits, milk). McDonald's pricing strategy is closely tied with the law of demand, meaning that it is dependent of its customers' spend trend.
Oligopoly
An oligopoly is "a market dominated by a few large producers of a homogeneous or differentiated product" (McConnell & Brue 2004).
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.
Schlosser and Wilson argue that expansion of fast food chains has fostered conformity within areas that were once unique. One such
Oligopoly is a market structure where there are a few firms producing all or most of the market supply of a particular good or service and whose decisions about the industry's output can affect competitors. Examples of oligopolistic structures are supermarket, banking industry and pharmaceutical industry.
Ruskin, Gary. "The Fast Food Trap." Mothering No. 121. Nov./Dec. 2003: 34-44. SIRS Issues Researcher. Web. 15 Jan. 2014.
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).
There are many industries. Economist group them into four market models: 1) pure competition which involves a very large number of firms producing a standardized producer. New firms may enter very easily. 2) Pure monopoly is a market structure in which one firm is the sole seller a product or service like a local electric company. Entry of additional firms is blocked so that one firm is the industry. 3)Monopolistic competition is characterized by a relatively large number of sellers producing differentiated product. 4)Oligopoly involves only a few sellers; this “fewness” means that each firm is affected by the decisions of rival and must take these decisions into account in determining its own price and output. Pure competition assumes that firms and resources are mobile among different kinds of industries.
McDonald's also focuses on the perception of value within it line of products and therefore takes care to price its menu items accordingly. Different products are priced differently depending on which target audience those items appeal to most. An extensive value menu is an essential part of any fast-food menu in recent years. The prices and products within the value menu can prove to be areas that will make or break a fast-food companies' year depending on the competitions value menus.
Monopolies are when there is only one provider of a specific good, which has no alternatives. Monopolies can be either natural or artificial. Some of the natural monopolies a town will see are business such as utilities or for cities like Clarksville with only one, hospitals. With only one hospital and there not being another one for a two hour drive, Clarksville’s hospital has a monopoly on emergency care, because there is not another option for this type of service in the area. Artificial monopolies are created using a variety of means from allowing others to enter the market. Artificial monopolies are generally rare or absent because of anti-trust laws that were designed to prevent this in legitimate businesses. However, while these two are the ends of the spectrum, the majority of businesses wil...
Difference Between Oligopoly and Monopolistic Competition An oligopoly market structure is one in which there are a few large producers who are present in the industry and account for most of the output in the industry, there are many small firms but few large. firms dominate and have concentrated market share. Whereas monopolistic competition is a market structure that has a large number of sellers, each of which is relatively small and posse a very small market share. Another feature of an oligopoly is that there are some barriers to entry and exit into the industry.
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.
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 ...
In a perfectly competitive market, the goods are perfect substitutes. There are a large number of buyers and sellers, and each seller has a relatively small market share. Perfect competition has no barriers to information regarding prices and goods, meaning there is no risk-taking behaviour – sellers and buyers are rational. There is also a lack of barriers for entry and exit.
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).
Burger King’s core competency is fast food restaurant franchises specializing in made to order, flame-broiled hamburger sandwiches, particularly the “Whopper”. Using the strategy of industrial organization to capture market share Burger King offers a similar product (hamburgers) in a different way (flame-broiled). This strategy of product differentiation is part of the firm conduct category that Burger King uses to set itself apart from its competitors. In order to compete with its fast food competitors Burger King accentuates its core competencies in its marketing and product strategies, thereby leveraging market share.