Main Market Structures: Perfect and Monopolistic Competition, Oligopoly, and Monopoly

There are four main market structures, each has there own character and each affects the economic market differently. Throughout this essay, we will discuss the different characteristics of each structure. We will be applying this research to the mobile phone market. Using examples and applying the knowledge this will allow us to get a better understanding of each market structure.

Firstly, we will be looking at what I believe is the fairest market structure for all businesses. Perfect competition, this is when a large number of small firms compete against each other and no one firm has a significant market share. Therefore, there is no one big player within this market allowing an even playing field for all firms to trade freely. Prices within this market tend to vary from business to business as there is no one firm that is setting the trending price for the entire market to compete with. The advantage of a perfect competition market is that all firms may maximize profits as they are not competing to be the cheapest or most competitive price in the market. All businesses may freely exit or enter this market without facing fierce competition scaring them away, trying to undercut their prices, or taking their customers away from them. All firms are selling identical (homogeneous) products to their customers within this market therefore there are little to no customer preferences for products within this market. There are not many examples that exist today of a perfect competition market, unfortunately, we live in a very competitive world where the majority of markets have larger firms, all trying to compete to be the biggest and undercut the competition in order to have the largest market share.

Secondly, we will be looking at a slightly more realistic market structure than the perfect competition market structure. Monopolistic competition, this is when a market has a large number of small firms all competing within the market, however, no one firm has significant power. Each firm sells similar products which are slightly different to one another. This allows firms within this market to have a degree of power as they are free to set their own prices for their individual product. This can be seen as both an advantage and disadvantage because this gives firms a degree of power and control without having a drastic amount of power that allows them to start affecting the entire market, however, this can be seen by consumers as profiteering which most consumers do not like, and they can see the product or service being sold as overpriced. The best example of a monopolistic market is the bread market. Each brand has a something slightly different with their loaves, wether it may be the taste, Vegan, gluten-free, or the packaging the firms have the power to charge their own prices as their product is slightly different from the rest. Even though they are all just alternative loaves of bread.

Another market structure that we will be looking into is the Oligopoly market structure. This market structure is more commonly seen in today's competitive world with firms competing to be at the top with the biggest market share. An Oligopoly market consists of a smaller number of firms which have more power within that market. This leaves less or no room for other new companies to enter the market. Due to the smaller number of firms within the market, this allows the ones that are in the market to have quite significant power. They can create new innovative products, and charge higher prices as there is little to no competition. There tend to only be about 3-4 dominant players within an Oligopoly market. We can see a prime example of an Oligopoly market within the mobile phone industry. There are very few companies that manage to break into the mobile phone industry successfully. Apple, Samsung, Google, and the new kid on the block Huweii. These firms all have something in common, they all have massive pots of money. In order to even try and break into this market, you need extraordinarily large surpluses of money to try and innovate and build something new that the market wants, needs, and has never seen before. This isn’t easy when you are competing with the likes of Apple having just turned into a trillion-dollar company last year, again emphasizing the sheer competition that new firms face when trying to enter the mobile phone market.

The final market structure we will be looking at is the Monopoly structure. As the name suggested Monopoly structure is when one singular firm controls the whole market. This generally comes about when a firm creates a product or service that no one else has, therefore there are no alternatives in the market for consumers to go too. This allows these organizations to charge a significantly higher price for their product because there is no competitors undercutting them by setting rival prices. However, in todays world Monopoly companies, because of their large market share and power, are generally regulated by the government so that they cannot completely rip off the consumers when selling their products or services. There are not many monopoly companies left, this is due to the fact that when someone brings out a new product or service it is not long until a competitor comes along with a similar idea and this helps to get rid of the high charging monopoly firms. As they say bit of healthy competition is good. The only way to get around competitors creating a new similar product is by patenting the idea. This is generally very difficult to do as it comes at a very high cost which most start-up companies with a new idea cannot afford, again emphasizing why other organizations are able to great a similar product.

In order to truly look into the Oligopoly market structures of the mobile phone industry, we can look into an organization like Apple. Being one of the main pioneers of the mobile phone market they have significant market power. Apple inc started by the pioneer himself Steve Jobs. It was not known at the time but when Steve started Apple back in 1976, he was molding the world into what we know it as today, a tech fest where everything from our cars, planes, toothbrushes, productions lines, and of course the mobile phone and internet would be operating the world in our day to day lives. Today the mobile phone is such a key part to everyone's lives. A world that never sleeps, every person feels the need to stay connected at all times, and through our mobile phones, we can do just that. The world's biggest library, music collection, photo album, contact list, etc all at a touch of a button. Needless to say, the mobile phone plays a huge role in every person’s life today.

In the mobile phone market, there is no doubt a few large competitors. Apple, Samsung, Google, and the latest hot shot Hauwei to name just a few. It is a market with big players with big money trying to be the biggest and most powerful firm. All trying to pioneer the latest and greatest technology to put inside their mobile phones. With such a fast-growing and moving market if a company like Apple is not continually creating and pioneering new tech then they will fall behind and lose consumers to competitors. Apple however has a very clever tactic in ensuring they don’t lose consumers. With Apple’s ever-growing large product range and by tying consumers in it makes it extremely difficult to swap to another company. This is because Apple only makes their devices compatible with Apple products, so for example iTunes is only on Apple products. So therefore if you wanted to move brands to Samsung you could not take any of your music from your Apple phone to your Samsung and would have to purchase all music and make up a new music account. Apple locks you in by linking all the apps, music, etc. Now I know what you are thinking, who can be bothered with all that hassle? Exactly. This is what Apple wants people to think, they don’t want them to leave the brand even if the consumer wants to, so they make it very difficult for them.

However, Apple has made their range of products so easy to use, sleek and attractive that consumers cannot refuse them, differentiating them from the other firms. Their mobile phones have almost become a stylish accessory. There is a slight problem now, Apple phones and other competitors used to range from £300-500 for the latest models. Unfortunately, firms in the mobile phone market seem to have gotten relatively greedy now. The latest iPhone is now priced starting at £1100! Yes, I know what you are thinking, who would pay that for a mobile phone? I am pretty sure quite a lot of consumers out there that would spend that sort of money. why? Because it is Apple. In 2018 it was reported that the number of iPhones sold per minute around the world was 590 phones, that is a staggering 850,000 iPhones per day! This is happening with all firms in the mobile phone market. Samsung, Google, and Huweii are all increase prices of their products to compete with one another, if one is seen to be slacking or falling behind they may lose customers and market share. The reason for the price increase could also be due to the growing inflation, and/or increasing manufacturing costs. They problem with all firms in the mobile phone market increasing their prices is that they are cutting off a lot of their customers. They have turned their products into an upper market product and it is no longer a product which the ‘average’ person can afford. This may end up costing companies like Apple and Samsung as they may begin to lose loyal customers to the more competitively priced competitor.

To conclude, the four main market structures all vary completely. Some are more common than others, for example, positive competition and monopoly structures not being very common in today's society. Having no competition or anyone to challenge firms it tends to not be very good for consumers as higher prices can be charged by firms. Oligopoly or monopolistic competition is what the majority of products and services lay within. The mobile phone industry is very fast pace and in my opinion, getting out of hand. Firms like Apple need to stop thinking of profiteering so much and think more about the consumer. This will untimely lead to a longer life span for apple and the other mobile phone manufacturers.

References

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