Market Structures
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Market Structures
March 16, 2005
Market Structures
Part A:
Over the course of a product life cycle, as the firm moves through the sequences of monopoly, oligopoly, monopolistic competition, and pure competition the profit opportunities diminish.
What strategies could the firm pursue to prolong profitability?
The highest profits and most consistent profits are achieved while the firm operates as a monopoly. In the scenario the firm, Quasar, operates within this structure when its product is unique to itself and a patented technology. Innovation is what is going to keep this company in a monopolistic environment and profitable. By investing in efficiencies in production process Quasar is able to improve profitability and bank dollars for coming competition.
Instead of innovation and improvements in their technology the firm allows its patent to run out and then must compete with a company utilizing that technology to beat them at their own game. While still profitable, the Neutron is now utilizing technology available to competitors.
Recommended strategies would be technological improvements and additional patent protectionthus “morphing” the product and maintaining the monopolistic edge.
To afford this innovation additional profit dollars will have to be moved into research & development (R&D).
As the original patent expires we move into an oligopoly, essentially in competition with one other firm. My suggestion is to compete on two fronts: one, the new and improved technology which would be protected by a patent; and two, the machine which has had its technology patent expire.
In driving this business we would expend dollars on advertising driving brand awareness and stressing the technological advantages we brought and still bring to the table.
As more companies enter the market we would shift more production to that which we own exclusively and try to partner with a low wage assembler off-shore. This might give us the advantage needed to remain profitable.
We would continue advertising brand awareness.
In the final stages of pure competition we would continue my low wage labor driven outsourcing accepting what “little” profit dollars could be contributed and using those dollars to continue to drive R&D. We would also recommend a shutdown of every production line that was not providing a profit.
Part B:
Since oligopolies work in a competitive environment with a limited number of competitors, the companies within this market structure have more control over their pricing than those in a purely competitive market. The particular market represented in the simulation would most likely be a homogeneous oligopoly since Quasars patent expired and another company, Orion Technologies, began utilizing Quasars technology for its benefit. Since both companies use the exact same technology and components, the product of the two competitors, the all-optical notebook computer is homogeneous.
Oligopolists have the benefit of being