Industrial Organizations
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FORMS OF THE INDUSTRIAL ORGANIZATION
Forms of the Industrial Organization
University of Phoenix
Pure Competition – April Vanek
Pure competition is characterized by a large number of firms, free entry and exit into the market, standardized products, and independent sellers in large national or international markets. Firms do not participate in non-price competition nor do they attempt to control product price. “That means that the individual competitive producer is at the mercy of the market” (Brue & McConnell, 2004, Ch 23). An example of a pure competitive business is Earthbound Farm. In its infancy, Earthbound Farm started as a backyard garden which demonstrates free and easy entry into the market, and standardized products. Over the last 22 years the company has grown its organic farms to more than 30,000 acres.
In a purely competitive structure, a single firm cannot impact pricing in the market because demand for its products is elastic. Thus, price can only be affected by all firms simultaneously reducing or increasing output. An individual firm can maximize its profit by adjusting its output and use of its resources. By comparing total revenue and total cost, or marginal revenue and marginal costs, Earthbound Farm can determine an appropriate level of output. “With additional output, total cost begins to rise by ever-increasing amounts because of the diminishing returns accompanying more intensive use of the plant” (Brue & McConnell, 2004, Ch 23). In order for Earthbound Farms to truly increase total revenue, they must reduce total cost by becoming more efficient at harvesting organic produce. Fortunately, their market approach is successful for them, but it is not the only one that is established and has a success rate. The following paragraph will explore another market structure called an oligopoly.
Oligopoly – Melissa Lorio
One market structure that can be identified in the market today is an Oligopoly. “An oligopoly involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals and must take those decisions into account in determining its own price and output” ( Brue & McConnell, 2004, p. 3,4). For example, Shell and Texaco are companies which are part of an Oligopoly. These companies are a part of the petroleum industry and deal with many factors in the quest to increase their revenue. In relation to price, these companies will depend on their sellers to decrease their price weekly to capitalize on the consumers demand. Because they are an oligopoly, price variation is healthy, but should not deviate too much in order to keep things stable in the market. Another strategy that these companies use involves a free car wash or free coffee with purchase of their product to offer an incentive to purchasing their gasoline. Conversely, one of the most popular strategies is the promotion of efficiency reflected in the use of the swipe card at the pump. This initiative reflects the importance of time in the consumers eyes. Therefore, this market structure was effective, but one would be remiss without examining a monopolistic competitive approach and how it can impact a company.
Monopolistic Competition – Angele Ruddy
Companies in a monopolistic competition compete on product innovation and differentiation rather than on price. Nike footwear is a company with a monopolistic competition market structure. As seen on the company website, Nike differentiates itself on product technology, “At Nike the job of technology is to keep pace with human potential”. Monopolistic competition is characterized by three things. The first is a large numbers of sellers in the market that Nike competes with such as New Balance, Adidas, Asics, Saucony, and Reebok which meets the first requirement of monopolistic competition. Another characteristic of monopolistic competition is differentiated products. All the manufacturers previously mentioned have certain product qualities that they market. Nike focuses on product innovation, with the Shox and Nike Air product lines in their running shoe division. Hence, the reason the Nike brand is a household name. The third characteristic of a monopolistic competition market is easy entry into and exit out of the market. An example of a company that has done this would be Puma. Hence, “The firm can attempt to stay ahead of the competitors and sustain its profit through further product differentiation and better advertising.” (Brue & McConnell, 2004, Ch 25). Moreover, Nike uses pricing, product differentiation and advertising to increase the demand for its product. Nike uses market research to determine which combination of advertising, price, and differentiation will maximize its profit. “In practice, this optimal combination cannot be readily forecast but must be found by trial and error” (Brue & McConnell, 2004, Ch 25). Therefore, Nike is successful at what they do, but we must further examine companies that utilize all of the market structures to achieve success.
Changes Developed From the Suppliers and Consumers for Quasar
To get a general overview of a company that has utilized four of the market structures, one must examine the company Quasar and observe its lifecycle. Quasar first started as a monopoly selling the Neutron optical notebook computer. As a monopoly, Quasar focused on stimulating the demand