Types of Market Structures
Market structures are defined as the characteristics that outline the relationship between sellers and also the relationship between buyers. In business, market structures form the basis for assessing the business in the associated industry. There are four basic types of market structures as explained below.
Pure Monopoly
in a pure monopoly market structure, there is a single firm that dominates the entire market. Therefore, the firm and the industry are similar. This means that the firm produces a product that has no substitute in the market. Since the firm has all the powers over the market, it can set any price it won’t be depending on the forces of demand in the market. For a monopoly company to make great profits, it reduces its output and increases prices since there is no substitute product buyers can switch to (A Guide to Types of Market Structures | AU Online, 2020). New firms are blocked from entering the market by a monopoly due to their control over the market.
Two examples of pure monopolies are professional sports leagues and public utilities. For instance, professional sports leagues and rights require large capital that can bring about legal barriers. It is therefore easy for an existing sports league to control the prices of players in that sports. Similarly, public utilities have extreme economies of scale that a start-up company with require to enter the market (A Guide to Types of Market Structures | AU Online, 2020). For example, for a company to produce pipes it will require large capital and also there will be legal barriers.
Perfect Competition
in perfect competition market structure, many small firms compete with each other perfectly. Therefore, there is no single firm that influences the market. With all firms sharing the same power of influencing the market, firms can enter the market or exit anytime they wish. Similarly, the market prices are determined by the participating firms alongside the market forces such as demand and supply of goods and services. With the products homogeneous, the firms have no barriers to entering or exiting the market. However, in real-life situations, perfect competition is rare and it is only used to assess industries that provide the same products in the market (A Guide to Types of Market Structures | AU Online, 2020). It is therefore referred to as a theoretical approach.
The best examples for perfect competition markets include craft, agricultural and stock markets.
Oligopoly
An oligopoly market structure is characterized by the existence of a few firms that dominate the market. These few firms may either decide to work together or compete against each other hence gaining a collective market to regulate prices in the market. Since there few firms that control raw material, patents and financial resources it is very difficult for new firms to enter an oligopoly market structure. Since they have blocked new firms to enter the market, the few dominating firms are likely to set high prices for goods and services they offer. However, when they raise prices, customers such as substitute goods and services (A Guide to Types of Market Structures | AU Online, 2020).
In an oligopoly market structure, the firms may be producing homogeneous or differentiated products. For example, Nintendo, Sony, and Microsoft are the companies that dominate the video gaming industry.
Monopolistic Competition
In a monopolistic competition market structure, many firms compete against each other. The difference between monopolist competition and perfect competition market structures is that in monopolistic competition firms produce highly differentiated goods. The difference in product quality forms the basis of different prices. To compete in the market, a firm is therefore expected to use competition strategies such as advertisement, branding, and pricing strategies (A Guide to Types of Market Structures | AU Online, 2020).
Examples of monopolistic competition market include service and repair, beauty and spar, and fast food restaurant markets.
Why Monopolies Arise
A monopoly company exists in a market where it is the only company that produces certain goods in the market. With little or no competition the company, therefore, sets its prices depending on the purchase pattern by consumers. However, there are certain ways that a firm can use to create a monopoly in the industry. For example, holding a scarce resource, buying up the competition and using intellectual property rights forms some of the strategies a firm can use to monopolize the market.
The easiest way of becoming a monopoly is being granted exclusive rights to produce certain goods and services by the government. The government ensures that there is o other firm licensed to produce substitute products a monopoly firm produces (How and Why Companies Become Monopolies, 2020). Additionally, the government subsidizes the cost of production so to ensure that the monopoly company has a large economies scale that can not be achieved by a new company.
The event of the government taking full control over a firm is referred to as nationalization. This is the process that the government does to make sure they control an entire industry protecting it from private investors. There are good examples of nationalization such as childhood education and mail delivery. However, it some countries, especially communist countries, the government controls the entire production sector.
Another way that a firm creates a monopoly is by having access to scarce resources. A firm that has access to raw materials that no other firm can access becomes a monopoly by creating products that other firms can not be produced by any other firm (How and Why Companies Become Monopolies, 2020). Examples of these raw materials include crude oil, diamonds and gold.
Price Floors Control
In some instances, price floors are often referred to as “price control” since they prevent a price from falling below a given price mark. Agricultural products are the main products that many countries create price floors to ensure that the price prices of these products are regulated. An example of the government controlling the product price floor is when the government purchases a product to create demand (Greenlaw and Shapiro, 2020). If the supply goes high the government purchases extra produce to ensure that price does not go down.
The control of European wheat prices by the European Union forms a real example of the price floor. The Union spends more than 60 billion euros annually to support its farmers by controlling prices from falling. In the absence of its intervention, the prices could be controlled by the supply and demand market (Greenlaw and Shapiro, 2020). For instance, when the production increases than the consumers’ ability to purchase the prices could fall below the required price.
Samsung Report
Samsung is a South Korean multinational conglomerate, thus consists of many affiliated businesses. Its headquarters are found in Samsung Town, Seoul in South Korean. It was founded in 1938 as a trading company by Lee Byung-chul. Later the company evolved to businesses such as retail, food processing, securities, textiles, construction and shipping, and electronics. In 2017, it was listed as the 6th highest in brand value. Its recognized affiliates include Samsung Fire and Marine Insurance, Samsung Life Insurance, Samsung SDS, Samsung Heavy Industries, Samsung C&T Corporation, Samsung Engineering and Samsung Electronics.
The vision of Samsung Electronics is to become the leader in creating innovations in technology, products and solutions. It dreams of creating a future that fulfills the needs of both its consumers and employees. Samsung aims at achieving $400 billion annual sales by 2020 and enter the top 5 list of most valued brands globally. The strategy of “creativity”, “Great People”, and “Partnership” form the business management, operation, and culture for the company’s future (Sustainability Report │ Financial Information │ Investor Relations │ Samsung Global, 2020).
One of the main products produced by Samsung is mobile phones. In the mobile communication business, Samsung is the leading producer of smartphones with a market share of 21.2% as of 2020 report. The company operates in an oligopoly market. It faces competition from companies such as Huawei with a market share of 17.8%, Apple 13.3%, Xiaomi 10.7% and Vivo 9%. However, with all this stiff competition, Samsung thrives in the marketing by producing the best smartphones globally. In 2016, Samsung launched Galaxy S20 which was the first smartphone to use the 5G network (Sustainability Report │ Financial Information │ Investor Relations │ Samsung Global, 2020). Additionally, they have recently launched Note 20 and Fold 2 series that will help the company continue dominating the mobile phone industry.
Samsung has been successful and will continue being successful has many business analytical companies predict. It pledges creating and delivering quality products to its customers that will enhance the lifestyle and convenience of users. Additionally, the company is dedicated to providing great innovations and creations as evident by the launch of Samsung Galaxy S20, a smartphone that uses a 5G network. In the future, Samsung will continue dominating the market if it continues creating great technology innovations and research. However, from the event of being accused by the Apple company that it stole its design technique, Samsung Company raises some questions about its future if it continues stealing other companies’ designs. This is because many smartphone consumers like the uniqueness and quality of smartphones they purchase.
References
AU Online. 2020. A Guide To Types Of Market Structures | AU Online. [online] Available at: <https://online.aurora.edu/types-of-market-structures/> [Accessed 16 July 2020].
Samsung global. 2020. Sustainability Report │ Financial Information │ Investor Relations │ Samsung Global. [online] Available at: <https://www.samsung.com/global/ir/reports-disclosures/sustainability-reports/> [Accessed 16 July 2020].
Investopedia. 2020. How And Why Companies Become Monopolies. [online] Available at: <https://www.investopedia.com/articles/investing/071515/how-why-companies-become-monopolies.asp> [Accessed 16 July 2020].
Greenlaw, S. and Shapiro, D., 2020. Price Ceilings And Price Floors. [online] Opentextbc.ca. Available at: <https://opentextbc.ca/principlesofeconomics2eopenstax/chapter/price-ceilings-and-price-floors/> [Accessed 16 July 2020].