Introduction
The interconnected characteristics of a market, such as the number and relative strength of
buyers and sellers and degree of collusion among them, level and forms of competition, extent
of product differentiation, and ease of entry into and exit from the market define a market
structure.
The concept of market structure is central to both economics and marketing. In decisionmaking analysis, market structure has an important role through its impact on the decisionmaking environment. The extent and characteristics of a market structure affect choice
behavior among the firms in that particular market.
Types of market structures
There are four basic types of market structure:
(1)
(2)
(3)
(4)
Perfect competition
Oligopoly
Monopoly
Monopolistic Competition:
Monopoly
A monopoly exists when one company and one only provides services in a particular industry, or one
company dominates and consumers cannot substitute anything that comes close. Today, very few
industries are monopolies. Utility companies such as water companies or electric companies may be
considered monopolies. Consumers can't exactly substitute something else for electricity from the local
provider, unless they switch to firewood and candles.
Features
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single seller with considerable control over supply,
prices makers,
There exists barriers to entry of the market.
Oligopoly
An oligopoly consists of only a handful of companies selling similar products. Consumers can substitute
products, but only one company's offerings for another. An example would be the three big American
car companies of today: Ford, GM and Chrysler.
Features
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few dominant firms,
price makers but have interdependent behavior in setting prices,
products are differentiated,
Existence of barriers to entry of the market.
Monopolistic Competition
In monopolistic competition, many sellers sell different products. It's very similar to competition, below,
with the exception that the products themselves are a bit different from one another, so consumers
look for those differences rather than price differences. An example is the restaurant industry. Anyone
can obtain the proper permits, licenses and such and open a restaurant offering any cuisine or food in
the world. Whether the restaurant is successful or not depends upon whether or not consumers like the
food, service, décor, location, and all the other factors that make restaurants successful.
Features
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many firms in the market,
products are differentiated,
low entry and exit costs,
Price makers but competition limits pricing power.
Perfect Competition
In markets with perfect competition, there are no barriers to entry, and many offering different goods.
Consumers often shop on price differences alone. Wal-Mart may be viewed as a purely competitive
company within the grocery industry for its super centers that offer lower prices than competing grocery
chains.
Features
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many buyers and sellers,
price takers,
no barriers to entry of the market,
Products are differentiated.
Effectiveness of market structures to Coca Cola Company (oligopoly market structure)
The market structure is effective to Coca Cola Company in the following ways:
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In determining the prices of the company’s products: in oligopoly firms decision affect
the decisions of other firms. Like the common competitor of coca cola Pepsi, it is
important for coca cola Company to consider the effect of pricing of its coca cola
products on the pricing of Pepsi company products.
In determining the distribution channel: it is important for coca cola to consider the
features of its market structure so as to know the number of competitors it has sand
their respective distribution channels.
In determining the marketing strategy and the market mix: market structure is
important to coca cola company in determining if it will use non price marketing
strategies like product differentiation and branding of price oriented market strategies
like price wars.
References
1. Baker, Jonathan, and Timothy Bresnahan. 1988. "The Gains from Merger or Collusion in ProductDifferentiated Industries." Journal of Industrial Economics 33: 427-444.
2. Arndt, Johan. 1979. "Toward A Concept of Domesticated Markets." Journal of Marketing 43
(fall): 69-75.
3. Ball, Dwayne, Charles Lamb, and Roderick Brodie. 1992. "Segmentation and Market Structure
When Both Consumer and Situational Characteristics are Explanatory." Psychology and
Marketing 9(5): 395-408.
4. Fraser, Cynthia, and John Bradford. 1983. "Competitive Market Structure Analysis: Principal
Partitioning of Revealed Substitutability." Journal of Consumer Research 10 (June): 15-30.