Choosing Market Structures
Market structure is an understanding of the economics and characteristics of firms. Different firms exist in several industries. Firms are companies, whereas industry is a collective name for a type of business: the cement industry, laugh industry, music industry, petroleum industry, among others. It is advantageous to the entering and exiting firms to internalize the elements and characteristics of a trade before getting into it. These are simply the rules of engagement for each market participant.
This essay will specify its discussion in the telecommunications industry. Understanding any market structure is mainly focused on the nature of competition and pricing. Analysts spend most of their time analyzing these two factors because, again, this is a sophisticated part of the business. Competition in markets exists differently. Markets can either have perfect competition, imperfect competition, oligopoly, duopoly, and monopoly. All this nature of competition has rules, but this depends on the existing firms in an industry. In most cases, entering firms usually have no say in the markets they are coming; they typically find rules already set by existing ones.
In a perfect competition type of market structure, there are many buyers and sellers. Each company makes similar products, and there are no barriers to entering or exiting from a market. In most of the occasions, there are no such market structures. Viewing most of the telecommunication firms, they only operate and conquer the countries they operate in. On the other hand, imperfect competition has the same characteristics only that product produced is different. In this industry, all firms facilitate communication and offer the same products only that they package their services different from one another. Most telecommunication companies practice either oligopoly or monopoly structures. These are the structures where there are single or few sellers and many buyers in the market; the sellers have full control of the prices, barrier to entry into the market, price discrimination and price maximization. In almost all countries the communication industries practice such. Take a look at Safaricom and Airtel in Kenya. These two firms have manipulated the market since time immemorial. Other firms have tried entering the market only for them to fail. If one firm exists the market, which is very difficult because there are barriers, this will leave the country with a monopoly kind of structure.
Vodafone is an international firm but has only managed to conquer a few regions; this is because this industry is very competitive, provided that there are other communication companies. Looking at how these companies are ranked according to performance; AT&T is the number one telecommunication industry, whereas Vodafone is ranked at position 9. AT&T has only majored some parts of North America, whereas Vodafone operates in twenty-three counties worldwide. All these are due to different market structures. With this illustration, it is evident that the secret to a good business is understanding the market structures before entering it.
Market structures go beyond the nature of competition and pricing techniques. This also refers to how regulators regulate the market. Some rules are bent in favor of other classes, and others are strict to disadvantage small scale business owners. This is where the technology kicks in. Think of it in this perception, there are four generations of technology, and we will be shifting to the fifth soon that is 5G. Moving from the first generation to the fourth lasted decades but shifting from 4G to 5G barely lasted half a decade. The introduction of 5G will favor some telecommunication companies, whereas disservice some firms. Here is how monopolies and oligopolies manage to thrive in this competitive world. This is all a game of diversifying your tactics. (Korbel, Patrick, and Josie Misko, 56 – 90). A company like Verizon Communications will be favored, whereas China Telecom Corporation Limited and China Mobile limited are very disadvantaged. This will force them to maneuver their way up the top levels again.
Understanding the market structure motivates investors to research how monopolies and big-game players in the market align the financial bandwidth. This does involve not only a chase for profit and profit maximization but also understanding global politics and power. This is a new level of analysis that if investors pay keen attention to, they will soon reach a level of controlling the market. If only moves are smartly played, it is only a matter of time before a small investor expands his volumes and acquire top positions in the market. Once one has the power to maximize and discriminate price, they now regulate the market rules at their own will, of course, to their advantage. This is only achievable if and only if investors read Central bank reports, political realities instead of balancing income statements all day. This will enable them to predict the economic climate soon. (Gabel, Sebastian, Daniel Guhl, and Daniel Klapper, 557-580).
The truth is that 0.1% of the investors have a say at the table so an investor ought to steer up the ladder to benefit exclusively. The structure is the key, but it often diversifies, so you also change with time.
Work cited
Korbel, Patrick, and Josie Misko. “VET provider market structures: history, growth and change.” NCVER, Adelaide (2016).
Prenkert, Frans. “Market investments in resource interfaces: understanding market assets in networks.” IMP Journal (2016).
Gabel, Sebastian, Daniel Guhl, and Daniel Klapper. “P2V-MAP: mapping market structures for large retail assortments.” Journal of Marketing Research 56.4 (2019): 557-580.