Types of Market Structures and Competition in UK

Table of contents

Different Types of Market Structures

Market structures are the business orientated characteristics of a market; all businesses must focus on these characteristics of the market because these have an effect on the degree of competition in the industry and influence the business product or service pricing decisions.

Perfect Competition

In a perfect competition there are few entry and exit barriers, in this type of competition the companies target the mass audience and they differentiate their product with minor changes in the product attributes (Homogenous).

Homogenous products are identical products or business e.g. aviation all airlines prove one service which is to get their customers from one location to their destination and most customers have no preference or specific type of airline that they want to travel with, most customers will just look for the cheapest airline.

In such type of competition most of the companies use Push strategy, i.e. huge efforts will be done through their sales team, the main focus is the product availability. In this type of competition the companies are forced to follow the competitive pricing strategy in order to survive in the industry, i.e. the buyers have the power to influence the price of the product or services.

Examples of a perfect competition to its closest definition are in the financial market like stock exchange, currency exchange market and the bonds/certificates market. As the companies are bound to follow market prices the only way the company can have advantage over its competitors is by reducing its operating costs and working at optimum level of efficiency

Monopolistic Competition

Under monopolistic competition, the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Either the physical products can be varied in quality, features, style or the accompanying services can be varied. Buyers see different in sellers, products and will pay different prices for them. Sellers try to develop differentiate offers for different customer segments and, in addition to price, freely use branding advertising and personal selling to set their offers apart.

In this sort of environment the businesses and trades people have somewhat control over their prices because of the products differentiations. Most common examples of monopolistic competitions are: restaurants as in the right area and right type of food they can have their own small portion of monopoly, professional solicitors, building and project managing firms and finally plumbers as there are less of them and more required.

Oligopoly

In this type of competition the industry has a small numbers of large dominant firms that have a firm control over the market. In oligopoly there are many entry and exit barriers such as huge investments etc. In this type of industry firms usually follows pull strategy and make huge efforts in marketing and advertising to attract its target customers, the products in the industry could be highly differentiated or even be similar but hard of getting a hold and this is why businesses use branding or homogenous.

Due to the low degree of competition theses big giants can decide on their own price which is most suitable for its target audience and these prices will be non-competition prices however there could be potential for collusion and price fixing so that each dominant business can enjoy their market share and have profits accordingly i.e. their profits margin will vary but still always high.

Example of oligopolistic business industries are: supermarkets such as Tesco which alone owns 30.4% which is nearly 1/3 of the UK supermarket retail share market share, banking industry, chemicals industry, oil and energy industry, medical drugs and also the news and media broadcasting industry.

Monopoly

A monopoly has high barriers to entry and firms have strong controls over their prices and they also control the supply of their product which can increase demand of popular products, because a firm with a monopoly has majority of the market share it can decide to have low prices in order to destroy their competitors.

A good and most current example of a monopoly is the Apple Company which has created the iPhone, because of the degree of the monopoly there is a high possibility of price discrimination where the customers and the consumers have their choices limited to what is available in the market.

Types of Monopolies 

  • Pure monopoly in where the firm is the industry, for example Transport for London, the firm which owns all buses and underground tubes in and around London, this is where consumers have no or very limited choice.
  • Actual monopoly is where the firm has somewhat majority of the market share in the industry, in this case Tesco is the most famous example, Tesco owns over 30.4% of the market share and is the leader in supermarket industry.
  • Natural monopoly is where there are high fixed costs for example the energy industry like gas and electricity as well as water, telecommunications and the transportation industry like underground and rail.

The disadvantages of a monopoly is that customer are exploited to high prices and potential supplies have limited choice for demand and this means that the consumers have less choice and again might have to pay higher prices than normal or the monopoly can even use very low price to push their competitors towards administration or bankruptcy.

What is Tesco’s Market Structure?

Tesco’s market structure described by the media is believed to be a monopoly, Tesco has also been through the legal proceedings to prove their innocence, Tesco has accused of being manipulative and gaining monopoly by building stores across towns and cities through the country and Europe but realistically Tesco is an oligopoly, although Tesco is the dominant supermarket it has fairly large competitors who also partly control the market.

“A ‘competition test’ to curb the power of the supermarkets was unveiled by the Competition Commission last year as part of a planning shake-up designed to boost competition in the multi-billion pound grocery market.

But the tribunal agreed with Tesco that the commission did not fully take account of the fact that the test, relating to planning decisions for larger stores, might have “adverse effects for consumers”, among other matters.”

How has Tesco Responded to this Structure?

Monopoly Vs Oligopoly

Tesco has over 4,000 stores across the world and out of those 4,000 Tesco has more than half of them in the UK around 2362 stores and this does not include all the Tesco metro and express stores. (http://www.tescoplc.com/plc/about_us/map/)

Tesco themselves say that it is an oligopoly, this is because Tesco is not the only supermarket in the UK, Tesco is the dominant shareholder but cannot be called a monopoly as there are many other firms which are in competition with Tesco e.g. Sainsbury which owns 16.3% of the UK supermarket shares and Morrisons which owns 11.5%, this means the entry barriers to entry are very high because the industry is dominated by small number of large firms which control and own that share market.

OFT (Office of Fair Trading)

The ‘Office of Fair Trading’ is the UK’s consumer and competition authority and their mission is to make markets work well for consumers. OFT is a non-ministerial government regulator that was established by government in 1973.

Another organisation that does similar commerce to what Office of Fair Trading do, Ofcom is an independent regulator and competition authority, for the UK communications industries, with responsibilities across television, radio, telecommunications and wireless communications services. Competition regulators are important in business and are required to ensure equality and a fair deal for all,

How Does OFT Checks Anti-Competition?

OFT plays a leading role in promoting and protecting consumer interests throughout the UK, while ensuring that businesses are fair and competitive. This work is done using the powers granted to the OFT under consumer and competition legislation.

OFT gathers intelligence about markets and trader behaviour from a wide range of sources and then they respond to complaints about markets from nominated consumer bodies, where the OFT is able to see potential problems, the OFT undertakes market studies and recommends to take action respectively.

In a recent investigation by the OFT has reviled that British Airways has been found guilty over the price of ‘long-haul passenger fuel surcharges’ and has paid a penalty of �121.5m to be imposed by the OFT, therefore enabling the OFT to close its civil investigation and resolve this case. This penalty to the British Airways has been the highest ever imposed by the OFT for violation of competition law and this demonstrates the determination of the OFT to deal strongly with anti-competitive behaviour.

In another case, The Royal Bank of Scotland or RBS has also paid a fine of �28.59 million about 2 months ago in March 2010, after admitting breaches of competition law between October 2007 and February or March 2008, the fine for the bank was reduced from �33.6 million to �28.59 million and this was done to reflect RBS’s admission and agreement to co-operate.

The OFT has a 5 step method of keeping a good eye on business and other organisations these 5 steps start with Analysis, Prioritisation, Prevention, Partnership and Evaluation, the details of all the steps are on their website under ‘What we do’. (http://www.oft.gov.uk/ about/what/#named2)

How Do Other Supervising Bodies Monitor Anti-competition?

As the OFT only supervises what happens in the United Kingdom, there is the European Union which is active in a wide range of policy areas, from human rights to transport and trade, the European Union monitors all of the 27 countries that are part of the union, using similar techniques as the OFT but on a much larger scale, the policy to monitor and control competition is said as “A fair deal for all” and this policy is described as:

“Effective competition to provide goods and services cuts prices, raises quality and expands customer choice. Competition allows technological innovation to flourish. The European Commission has wide powers to make sure businesses and governments stick to EU rules on fair competition. But in applying these rules, it can take account of the interests of innovation, unified standards, or small business development.”

United Kingdom Supermarket Share

Following are the 4 leading supermarket chains in the United Kingdom Tesco, Asda, Sainsbury’s and Morrisons, these fantastic four have a combined share of 75.6 percent of the UK grocery market accord to the research done in the 12 weeks ending 1 November 2009 (Source: Kantar World pane) http://TNS_Worldpanel

What Is European Union?

European Union is a unique economic and political society which is in partnership between 27 democratic European countries.

What Are its Aims?

Some of the basic aims of the European Union are peace, prosperity and freedom for its 498 million citizens in a fairer, safer world.

What Results So Far?

Under the European Union the members can travel and trade freely without any constraints as long as the members are trading in euro (the single European currency).

European Union policies ensure safer food and a greener environment, better living standards in poorer regions, joint action on crime and terror, cheaper telecoms and communication, millions of opportunities to study abroad and more

How does it work?

To make these things happen, EU countries have set up bodies to run the European Union and adopt its legislation. The main ones are:

  • The European Parliament (representing the people of Europe)
  • The Council of the European Union (representing national governments)
  • The European Commission (representing the common EU interest).

How can the members have their say?

The European Union is not a perfect society but it is an evolving project and constantly has to be improved. If a community or even an individual has an important point to show to the union they must do some of the following starting with:

  • Contacting their local MP – European Union policies are part of national politics.
  • Contacting their MEP and cast vote at the European Parliament elections the European Parliament enacts EU laws: (www.europarl.europa.eu)
  • Contacting their NGOs (consumer associations, environmental pressure groups, etc.) they work with the EU on shaping policies.

The EU has developed a single market system of laws which apply to all member states, and ensures the free movement of people, goods, services, and capital, including the elimination of passport controls by the Schengen Agreement between 26 European Union states which I have listed below. European Union executes legislations in justice and home affairs, and maintains common policies on trade, agriculture, fisheries and regional development.

Austria, Belgium, Czech, Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland. (http://www.axa-schengen.com/en/schengen-countries)

 

Free Movement of Citizens:

European citizens have the freedom to live, work, study, and travel in any other EU country. Since 1995 alone, about 100,000 young Britons have spent time studying in another European country.

More Jobs:

It is estimated the 3.5 million British jobs are dependent on* Britain’s membership of the EU. (Source: UK Jobs Dependent)

UK joining the Euro (Pros & Cons)

Below I have listed the advantages and disadvantages which were discussed by the chancellor Gordon Brown at the times of between 1999 and the year 2002 when the waves of countries in Europe joined the European Union and the currency:

Advantages:

  • A single currency should end currency instability in the participating countries (by irrevocably fixing exchange rates) and reduce it outside them. Because the Euro would have the enhanced credibility of being used in a large currency zone, it would be more stable against speculation than individual currencies are now. An end to internal currency instability and a reduction of external currency instability would enable exporters to project future markets with greater certainty. This will unleash a greater potential for growth.
  • Consumers would not have to change money when travelling and would encounter less red tape when transferring large sums of money across borders. It was estimated that a traveller visiting all twelve member states of the (then) EC would lose 40% of the value of his money in transaction charges alone. Once in a lifetime a family might make one large purchase or transaction across a European border such as buying a holiday home or a piece of furniture. A single currency would help that transaction pass smoothly.
  •  Likewise, businesses would no longer have to pay hedging costs which they do today in order to insure themselves against the threat of currency fluctuations. Businesses, involved in commercial transactions in different member states, would no longer have to face administrative costs of accounting for the changes of currencies, plus the time involved. It is estimated that the currency cost of exports to small companies is 10 times the cost to the multi-nationals, who offset sales against purchases and can command the best rates.
  • A single currency should result in lower interest rates as all European countries would be locking into German monetary credibility. The stability pact (the main points of which were agreed at the Dublin summit of European heads of state or government in December 1996) will force EU countries into a system of fiscal responsibility which will enhance the Euro’s international credibility. This should lead to more investment, more jobs and lower mortgages.

Disadvantages:

  • Twenty seven separate countries with widely differing economic performances and different languages have never before attempted to form a monetary union. It works in the United States because the labour market is mobile, helped by the common language and portability of pensions etc. across a large geographical area. Language in Europe is a huge barrier to labour force mobility. This may lead to pockets of deeply depressed areas in which people cannot find work and areas where the economy flourishes and wages increase. While the cohesion funds attempt to address this, there are still great differences across the EU in economic performance.
  • If governments were obliged through a stability pact to keep to the Maastricht criteria for perpetuity, no matter what their individual economic circumstances dictate, some countries may find that they are unable to combat recession by loosening their fiscal stance. They would be unable to devalue to boost exports, to borrow more to boost job creation or cut taxes when they see fit because of the public deficit criterion. In the United States, Texas could not avoid a recession in the wake of the 1986 oil price fall, whereas demand for Sterling changed in the light of the new oil price, adjusting the exchange rate downwards.
  • All the EU countries have different cycles or are at different stages in their cycles. The UK is growing reasonably well, Germany is having problems. This is the reverse of the position in 1990. Since the war the UK economy has tended to have an economic cycle closer to the US than the EU. It has changed because interest rates are set in each country at the appropriate level for it. One central bank cannot set inflation at the appropriate level for each member state.
  • Loss of national sovereignty is the most often mentioned disadvantage of monetary union. The transfer of money and fiscal competencies from national to community level would mean economically strong and stable countries would have to co-operate in the field of economic policy with other, weaker, countries, which are more tolerant to higher inflation.

(http://news.bbc.co.uk/1/hi/special_report/single_currency/25081.stm)

One of the few reasons that the United Kingdom did not want to join the single European currency with the first wave of countries on 1 January 1999 is that according to the chancellor of the Exchequer at that time in 1999 who was Gordon Brown our current prime minister said that, “although the government supported the principle of the single currency Britain would not be ready to join at least until the second wave of countries” which occurred in 2002 and during that time he told the European Union that the country should begin to prepare for monetary union but up till now there have been no indications of the United Kingdom joining the European Union currency, Euros.

From my understanding there are many possible reasons that the government should consider while joining Euro, joining Euro would reduced exchange rate uncertainty for UK businesses and lower exchange rate transactions costs for both businesses and tourists. Eliminating exchange rates between European countries eliminates the risks of unforeseen exchange rate revaluations or devaluation, further those businesses who involved in commercial transactions in different member states would no longer have to face administrative costs of accounting for the changes of currencies.

The loss of national sovereignty is the most often mentioned reason for the UK not joining the monetary union is the transfer of money and financial proficiency from national to community level would mean that economically strong and stable countries would have to co-operate in the field of economic policy with other weaker countries.

European Policies

The European Union is currently active in a wide variety of policies from ‘human rights’ to ‘transport and trade’; below is the list of some of the policy areas of the European Union.

Agriculture Media Competition Consumers Education

Employment Environment External trade Fight against fraud Human rights

Taxation Transport Justice, freedom Internal market Customs

(http://europa.eu/pol/index_en.htm)

Impact of European Union’s Competition policy on Tesco

Competition Policy

  • A fair deal for all

Effective competition provides goods and services cuts prices, raises quality and expands customer choice, allows technological innovation. The European Commission has wide powers to make sure businesses and governments stick to EU rules on fair competition.

  • Competition must be fair

It is illegal under EU rules for businesses to fix prices or carve up markets between them. A multinational company like Tesco cannot merge with another giant if that would put them in a position to control the market, though practice this rule only prevents a small numbers of mergers going ahead.

If Tesco plans to merge with its competitor, Tesco needs approval from the European Commission, the EUC (European Union Commission) marks their decision depending on the amount of business that Tesco has within the European boundaries.

The Commission may agree to a company having a monopoly in special circumstances – for example where costly infrastructure is involved (‘natural monopolies’) or where it is important to guarantee a public service.

  • The large may not exploit the small

In doing business with smaller firms, Tesco cannot use their bargaining power to impose conditions which would make it difficult for their supplier or customer to do business with its competitors. The Commission can, does and has fined companies for all these practices.

  • No props for lame ducks

The Commission also monitors closely how much assistance EU governments make available to business (‘state aid’). This aid can take many forms – loans and grants, tax breaks, goods and services provided at preferential rates, or government guarantees which enhance the credit rating of a company compared to its competitors but in this case this does not apply to Tesco till today as Tesco is already on top of its game.

  • Exceptions that prove the rule

Some exceptions to the general rules are possible. The European Union Commission can allow companies like Asda and Morisons to cooperate in developing a single technical standard for the market as a whole. It can allow smaller companies to cooperate if this strengthens their ability to compete with larger ones such as Sainsburys and Tesco.

Aid for research and innovation, regional development or small and medium-sized enterprises is often allowable because these serve overall EU goals.

  • Checks and balances

The Commission’s extensive powers to investigate and halt violations of European Union competition rules are subject to legal review by the European Court of Justice. Businesses regularly have to make appeals against Commission decisions if it seems like a unfair deal.

The competition policy stops the Tesco from growing further from their potential market share, something which Tesco has known to be done in the recent years. Effective competition provides goods and services, automatically raises quality and customer choices increase with competition. The policy also allows technological innovation and the European Commission makes sure that these innovations are in the European Unions fair competition policy.

Environment

The European Union has some of the highest environment standards in the world, developed over decades to address a wide range of issues. Today the main priorities are combating climate change, preserving biodiversity, and reducing health problems from pollution and marking sure that natural resources are being used more responsibly.

  • Climate change

Climate change is one of the gravest challenges facing humanity. The European Union plans to reduce greenhouse gases at least 20% by 2020 (compared with 1990 levels), raise in renewable energy’s share of the market to 20% and cut overall energy consumption by 20% (compared with projected trends).

All businesses like Tesco’s are directly affected by this policy as this aims to cut energy consumption and greenhouse gasses by 20%, meaning Tesco will have to recycle more, reuse materials more and reduce wastage and use of non-biodegradable equipment which will have a small dent on their profit.

  • Emissions trading

European Union’s rewards businesses and organisations, which reduce their CO2 emissions and penalises those that exceed limits. Introduced in 2005, the scheme takes in about 12,000 factories and plants responsible for about half the EU’s emissions of CO2.

Under the system, European Union governments set limits on the amount of carbon dioxide emitted by energy-intensive industries and if they want to emit more CO2 than their quota, they have to buy spare permits but most supermarkets stores do not manufacture and this means that they will have to use eco friendly methods of business and equipment. Tesco has already proven that they are committed towards being eco-friendly, “Tesco Plc, the world’s No.4 retailer, plans to spend over 100 million pounds with British green technology companies over the coming year as it steps up its drive to halve carbon emissions by 2020.”

  • Environmental health

Noise, swimming water, rare species and emergency response -these are just some of the areas covered under the extensive body of environmental legislation that the EU has established over the decades.

EU has set binding limits on emissions of fine particles known as PM2.5. Released by cars and trucks, these microscopic particles can cause respiratory diseases. Under the new law, EU countries will have to reduce exposure to fine particles in urban areas by an average 20% by 2020. In 2007 Tesco received the Top online green award for their zero-emission delivery vans.

  • Sustainable development

Sustainable development has long been one of the overarching objectives of EU policy. EU leaders launched the first EU sustainable development strategy in 2001 and updated it in 2006 to tackle shortcomings and take account of new challenges. Since then there have been significant efforts in terms of policy. Now the focus is on putting policy into practice in to UK’s market.

As Tesco manly sells general groceries they are affected by the European Union’s environment policy, in a way that it has to source materials from the suppliers who obey and follow the European Union’s environment policy, this means that Tesco has limited p of potential suppliers.

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Market Structure of Dell

For example, there are differences between Dells laptops and Acre’s laptop In the feature, style and functions. Besides, Dell competes with other firms through advertising their products rather than cutting their prices. Through advertisement, Dell’s products will be differentiated with other firms. Another way by differentiating their products is by research and development (R&D), through introducing new and improved products, consumers will decide to purchase from them. Hence, it is not necessary for Dell lower it prices to increase the demand and profit. This is because they are selling differentiated products.

Next, to start up an electronic firm does not require a huge capital requirement. For example, someone who wants to start up electronics business can get a loan and set up their business without too much trouble. Moreover, it does not require natural resources too. Besides, it is easily to exit the market. Therefore, Dell confronts low barriers to enter the market. Dell, as a monopolistic competitor, can be a price maker. This is because that its product is differentiated. On the other hand, due to the existence of close substitutes reduces, the demand curve that Dell met is elastic downward slopping demand curve.

From the demand curve above, if Dell lowers its price from P to Pl, this will be result In an Increase of sales/demand from Q to IQ . However, if Dell raises its price, for a monopolistic competitive firm, there will still be some of Its loyalty customers are willing to purchase their products and will not much affect its sales. Thus, due to Dell Is a monopolistic competitor, the demand curve that Dell met Is less elastic than for a perfectly competitive firm and more elastic than for a monopolist.

Market Structure of Dell By Livermore single computers firm in the market. This have let Dell met the conditions which is sell differentiate products. For example, there are differences between Dell’s laptops and Acre’s laptop in the feature, style and functions. Besides.

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Complex Market Structure

Both the oil and gas industry has a complex market structure. Global oil supply is being controlled by just five big players in the industry namely BP, Texaco, Royal Dutch Shell, TotalFinaElf and Exxon Mobil. For investors in oil industry, accounting of oil reserves plays a vital role. For oil companies, or any corporation that has its sales, product capped by limited supply with large market demand, investors always look for the long term oil deposits or reserves that will generate future income while deriving their expected revenues on the investment made in the oil companies.

Hence, if an oil company declares that it has potential vast amount of reserves of oil or gas, then it will have impact on its stock price. Royal Dutch / Shell Group on 9th February, 2004 declared that it had overvalued its oil reserves by 20% or higher by 3. 9 billion barrels. Due to this anomaly, Chairman of Shell, Phillip Watts and another top executive, Walter van de Vijver, forwarded their resignations. The company’s head of chemical division, Jeroen van der Veer, had replaced Mr. Watts. (Weirauch 2004).

Estimation of oil reserves is a crucial financial indicator for an oil company. Due to this overstatement, the company was under investigation by prosecutors and regulators both in Europe and in the United States. Overstatement of oil reserves is first exposed by the company’s draft audits exposing serious reserves problems in Oman and Nigeria. Mr. Vijver explained his stand through the issue of a statement asserting that he warned the top executives of the company as early as 2001 about the requirement to re-evaluate ‘potentially non-complaint reserves.

” Further, Mr. Vijver report also exposed that the corporation’s filing with the SEC might have over reported by about 2. 1 billion to 3. 5 billion barrels of oil. (Multinational Monitor 2004). Due to overvaluation, Shell’s stock price fell down about 12% causing huge monetary losses to investors. The stock price never recovered till the end of 2004 and it had shaken the confidence of Shell’s investors on the company.

It is to be observed that oil companies can account their oil reserves in their books only if it is from proven resources and that too the oil well is currently under production process and it is essential for the oil company to demonstrate that it is not only economical but also legally possible to produce oil under present scenarios. Hence, it should be proven resources rather than probable reserves, recoverable reserves or recoverable resources as these are more uncertain in nature.

Investors of an oil company will take only the proven resources for calculating their return on equity in the long run. However, there are many arguments that even unproven resources can be turned into proven resources by the employment of new, advanced technologies. The controversy corners around as there is no proven method or accounting standard to arrive at proven resources by oil companies. Normally, oil companies follow certain inbuilt guidelines for the calculation of proven resources or oil reserves.

It is to be observed that SEC never insists that a certificate should be obtained from a third party for the accuracy of oil reserves declared by an oil company. Hence, the oil company has to adhere some guidelines while arriving at reasonable numbers when categorising the oil reserves as proved. SEC of USA has the rigorous requirements around the globe regarding the method of arriving at proven resources but it demands only “rational certainty “ and this no doubt results in giving scope for subjective assessment by an oil company .

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Classifications of market structures in the US

In the United States economy most markets can be classified into four different markets structures. But, each and every market in the United States is completely unique from the others. Generally the best type of market structure for the general public is per-fect competition because it creates the lowest possible price for the public. There are some exceptions were perfect competition isn”t the best choice for the public on account of various reasons. The United States Postal Service is one of them and since the Postal Service is a monopoly, it is its own market.

This paper will discuss the budget dilemmas that the postal service has faced for the past twenty years and if it is in the best interest of the economy for the United States Postal Service to continue as a monopoly. The first time there was talk of privatizing the Postal Service was in 1979 when the Postal Service was losing vast amounts of money in the long run. But since the Postal Service is a necessity for America, the government had to subsidize the service in order for it to continue in operation. In 1979 the United States Postal Service had a cash flow of $22.

Billion and was additionally receiving $176 million from investing. Even with this added revenue the Postal Service was still greatly under funded on its own. During this time it was discussed to privatize the postal service and introduce competition because of the extreme losses that the service was experiencing. A positive argument for privatizing the Postal Service was with numerous competitors in the market there would be more efficiency and the public would receive lower prices. But this would also increase the usage of resources, for example airplanes and cars.

One of the problems the Post Office had was its receipts from consumer purchases that were submitted the next day after the transaction. If the receipts were submitted earlier the postal service would receive more money because they could invest that money sooner. Another way the Postal Service could increased profits was by competitively selecting banks that would give them higher interest rates and such. Probably the most relevant and final way to improve the budget of the Postal Service is to improve the bookkeeping poli-cies and banking techniques.

Not only did the Post Service propose to increase profits but they also proposed to cut costs in a number of ways. There were three methods that were proposed in 1946 for the protection of salaries that no longer exists. These have to do with the rural mail carriers. Under this antiquated method of delivering mail the Postal Service was los-ing money to any mail that went to “rural” areas. There are 48,000 mail carriers that deliver mail to millions of families that are considered to be living in rural settings; this osts the postal Service 858 million dollars a year.

This is a fairly easy problem to fix considering how much money is being lost. It was proposed that money loss could be significantly cut down if the Postal Service corrected the following problems. The rural mail carriers were assigned a certain amount of time to deliver to a specific rural area, this method was out of date and because of this the carriers have free time for which they got paid for. The next problem was that other mail routes based pay on how many miles he route covered, so the carriers were getting paid by the mile.

With this problem fixed the Postal Service could saved 26. 8 million a year. There was also an hourly rate that was in effect which indirectly promoted inefficient service. A stop to this could have saved the Postal Service $255,000 a year. From the num-bers mentioned above, it can be seen why the United States Postal Service was losing so much money. These problems did indeed eventually did get solved over the past fifteen years and now the Postal Service is making record reaking profits.

Now in the first quarter of the fiscal year 1996 the Postal Service already has a net income of $1. 2 billion. Now not only is the Postal Service just breaking even, but they are also making a profit. On top of that, the 1. 2 billion dollar figure is 115 billion dollars better then the quarterly forecast predicted. It is incredible that they are not only making a reasonable profit but it is increasing over the years. The Postal Service is also now reducing debts.

An example of this is when the Postal Service redeemed a 1.5 illion dollar loan two years in advance which will save them 22 million dollars of interest in the next two years. The Postal Service isn”t stopping with the revenue that it is receiving now. The Postal Service is planning to increase its international revenues of $1. 2 billion by twice the amount in the next five years and ten-fold by the year 2005. The Postal Service is continually working to “streamline” their operations for the future that they are now run-ning. The Postal Service is continualy looking to cut back on borrowing money.

All of the recent financial borrowing has been through the Federal Financing Bank, but the Postal Service now is looking into outside sources, such as bonds in the public markets. Business are starting to get jealous of the Postal Service because of the great prof-its it is experiencing. The Postal Service is now making a major impact on the United States Economy. Business are pointing out that in 1995 the Postal Service had records of $1. 8 billion in net income and a 1. 7 billion dollar debt reduction.

The $54 billion revenue that the Postal Service is ringing in would put them in 12th place on the Fortune 500 list and 33rd on the Fortune Global 500, with the worlds largest corpora-tions (#6,1). A recent study showed that domestic direct mail sales were at $333 billion in the year 1994. This figure is expected to reach over $500 billion by the year 2000. It can be seen throughout this paper how the United States Postal Service in-creased profits and does not have to borrow as much money as before. It seems that the Postal Service is doing just fine while it is a monopoly.

But there are still two arguments for and gainst the Postal Service continuing to remain a monopoly. On one side compe-tition is thought to make industries in the market more efficient and practice more innova-tive. But on the other hand the competition is also thought to lead to “a wide-spread cream skimming, with the postal service left only the high-cost, unprofitable markets. ” So who is to know which market would be better for the American economy as far as the Postal Service goes. But it is speculated if the United States Postal Service does keep increasing its profits over the years, maybe it will be privatized.

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Types Of Market Structure

Four basic types of market structures are: 1- Perfect competition 2- Monopolistic competition – Oligopoly 4- Monopoly There is also another market structure called Monopoly. 1- Perfect competition It is considered more theoretical than practical, because it is very rare. In perfect competition a large number of firms sell identical products, where none of them has pricing power. There no berries or very easy to enter to the market by any new farm. Prices. For example if we go to normal retail shops to buy vegetables, we will get at same prices from each and every shop.

Fish market at Male’ is a very good and a simple example, where inside the market lot of sellers will be selling same fishes. Prices will be set by the demand and supply. Neither buyer nor seller sets the price. It is more like automates pricing. Characteristics of perfect competition include large number of small firms, identical products, perfect resource mobility and perfect knowledge. 2- Monopolistic competition It is almost like perfect competition where large number of small firms sells similar but not identical products. Relative freedom of entry, to and exit from the industry.

It means buyers will have substitutes to choose from. Alternatives to buy for fulfill their needs and wants. Examples of industries structures as monopolistic competition includes, clothing industry, restaurants, and shoes and so on. 3- Oligopoly It is a market situation where products are supplied by small number of firms where each of them has influence over pricing and supplies which directly effects the position of the competitors. I oligopoly there is a special case where there is only two producers are called Duopoly. 4- Monopoly This is a market structure where only one producer in a market who has to the total control.

Buyers do not have substitutes and have no choice. They have total control over supply and prices. In this market structure, seller is always happy and nonusers suffer. They take more profit with a huge marginal value from the products. Characteristics of monopoly includes single seller, unique product, berries to entry and specialized information. The fifth type of market structure which is not included in basic structures is Monopoly. It is upside down of a monopoly where there is only one buyer. If we relate to a Mammalian context, government is the only buyer for the explosives and guns. Where there may be many sellers.

Exhibit 1 Perfect Competition Monopolistic Competition Oligopoly Monopoly Number of Sellers Many Few One Barriers to Entry Very Low Low Very High Type of Substitute Products Very good Good substitutes but differentiated Very good differentiated substitutes No good substitutes Nature of competition Price only Marketing, features and price Advertising Pricing Power None Little Little to significant Significant As mentioned above, from 1988 to 2005 telecommunication industry of Maldives was a monopoly market. The following will elaborate how it was a monopoly and what was the situation during the monopoly. 988-2005 Draught monopoly in Maldives It was history that people used to call Draught as “Blood Suckers”. When the company started in the Maldives in Maldives there was a telecommunication service by cable and wireless which uses USB set to communicate between the islands. After their establishment as one and only telecoms service provider in 1988 they brought a major upgrade to their network in 1989 in Male and introduced paging service in the Maldives. They also introduced internet service for the very first time in Maldives in 1996 followed by mobile phone service in 1997 which was upgraded to GSM in 1999.

Being the only company to provide the service and major share controlled by the overspent of the Maldives, they introduced services at a huge marginal value. Consumers have no substitution in the market, which lead Draught to grow up and make huge profit and extended its service to nationwide, while charging extraordinary high charges to cover its expansion costs and making more profit. It is usual to charge more from the consumers in monopoly market structure. In monopoly, always seller is always happy and consumers are unhappy.

Some pros and cons of monopoly are: Advantages Disadvantages Large capital scale benefit to the company More money to invest on development Earning national export revenues Price discrimination between consumers Very high market share Restricts production potential Do not actively pursue new clients Poor product quality Unfair wealth distribution Entry barrier for new comers When Waiting telecoms Maldives (presently called Reorder) started their service officially in Maldives on 1st August 2005 shortly after they were licensed on 1st of February 2005, the market structure changed to an oligopoly.

Oligopoly In economics oligopoly means that there are few sellers of a certain product in a market. Usually these sellers are always in a high competition with each other. In this type of markets sellers knows very well about their competitors. They have a high power to in pushing their products to the consumers. When on seller makes a change, it will directly affect other sellers. There is a special case in oligopoly which is called duopoly. Which is when the there is only two sellers in the market. Here are some advantages and disadvantages of oligopoly.

Advantages Lot of control Ability to fix prices Competitive pricing More profit making Perfect knowledge of the market Price controlling will be a disadvantage for consumers Creative ideas may fail to realizes Difficult for small firms to establish in the market Not much of competition No fair wealth distribution Oligopoly in Maldives telecoms industry From 2005 Reorder became the major and the only competitor to Draught. As usual they have initiated their business with a huge investment to make existence of their network across the Maldives.

It was a huge challenge for them to establish when there was a well-established and government controlled seller in the marker for almost a decade, market share was 100% controlled by monopolized Draught. Immediately after starting the service in the market by the new comer, the unhappy customers of the monopolized industry started to change their service provider. They started with introductory promotional prices which was far much better than the major market controller, which directly affected the business of Draught. Competition, strengths and weaknesses.

When there are two or more sellers are there in a market, it is obvious that the competition will be born in the market. It is very interesting to study about the competition between Reorder and Draught. Luckily I have got very good connections at the top levels of both the companies, which made me to sit and talk about their respective companies. I found that they are tightly in competition with each other. Pricing: When Draught was alone in the industry, consumers pay around USED $100 average user used to pay around MOVER 2000 per month for the usage. Call rates are sky high.

Rates differ from calls from mobile to mobile and mobile to landlines. When the competition started and if we see current situation, we have choices for individuals and businesses depends on what consumer needs. There are some consumers who want more talk time than data while others doesn’t care about the talk time but data allowance the service provider offers. Those used to spend around 000 per month now are spending less than 500 per month because of competitive pricing by the competitors. Advertising: Earlier days Draught keeps and average advertising.

Unlike that now each and every TV channel is occupied by both Draught and Reorder advertisements. All the islands with more population see those companies’ bill boards near harbors and schools. It is very clear that Reorder is doing more aggressive advertising while Draught use more informative advertising. Corporate Social responsibility: We used to say that both the companies do corporate social responsibility to a certain extent. But in real, in my study I found that rather than corporate social responsibility they both do corporate philanthropy. They do not actively participate in social activities.

But they do help by donation some money to do the social activities by others. That is a form of advertisement they both do. They are present in the activities as bill boards. Just to advertise the company name. For example: Thieved league football tournament is always sponsored by one of these two companies. Competitive advantages: Draught uses “first in Maldives” “Largest network” and so on while Reorder uses “best network for smart phones”. Draught is iris to come and still holds 65% market share while Reorder is gaining market share at a rapid speed.

Bad the backbone of the company is much better with latest technologies while Draught is upgrading its backbone. Subsidized handsets to consumers: Reorder started offering Samsung handset to its consumers with contract for the very first time in Maldives. And soon they will be starting offer apple handsets on contract, while Draught is working with apple to introduce subsidized apple handsets with contract. Apple currently certified Reorder network for their products while Draught is doing upgrades to obtain certification of using Apple reduces on contract. Is this industry good for the society?

Unlike the history of the monopoly in the telecommunication industry in the Maldives, with existing oligopoly (duopoly) consumers are happy now. As is economic theory, human wants are unlimited with the scares resources available, people are still aiming for mush cheaper services with better quality. As mentioned earlier in this report, consumers’ expenses, for the use of telecommunication are decreased by 60 percentages. We never heard of handset for installments by service providers before. But it is started now. We have heard about subsidized handset with contract tit carrier locked, from other parts of the world.

We never imagined that a small country with a small population like us will get phones on contract with subsidized prices. But it is soon to happen. Unlike perfect competition and monopolistic competition there are no much of sellers. So competition and pricing of the products will not be according to the demand and supply. Sellers will have the power to set the prices. Consumers are very happy when there is a perfect competition and monopolistic competition. Consumers are sad at most when there is a monopoly. But than they used to have, the monopoly. It is an average good for the society.

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Market Structure in Aircraft Manufacturing

Market structure in the aircraft manufacturing industry The market for commercial passenger aircraft is an oligopoly dominated by Boeing and Airbus. Critically evaluate competitive factors which influence firm growth, new product Development and pricing in the commercial aircraft market. [60%] How is the commercial aircraft market different from the market for personal computers, In terms […]

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Reflection Essay on Differentiating Between Market Structures

Kudler Fine Foods is an organization that offers gourmet foods and wines to the San Diego Metropolitan area. The organization currently has three locations (La Jolla, Del Mar, and Encinitas). Kudler Fine Foods stocks its fresh bakery, fresh produce, fresh meats and seafood, condiments and packaged foods, and cheeses and specialty dairy departments with local and imported goods. Kudler Fine Foods’ motto is Shopping the World for the Finest Foods and its mission statement is Kudler Fine Foods is committed to providing our customers with the finest selection of the very best foods and wines so that your culinary visions can come true.

Both Kudler’s motto and mission statement speak to the organizations passion of wanting to provide only the very best to their customers. In reviewing Kudler Fine Foods’ information, the organization appears to be competing quite well in the marketplace. The financials portion of Kudler’s strategic plan show the organization staying on the positive side of the profit margin despite only four months out of the year of above average sales. Also noted in the strategic plan are every store that in some way are similar to Kudler Fine Foods. These stores are more focused on supplying their customers with one or two services.

Because Kudler Fine Foods carries a larger variety of items, these stores only pose a small threat, if any, to Kudler Fine Foods. Kudler Fine Foods does plan to close one of their current locations and open a store in another location but this is not because of competition, rather a smaller customer base. Kudler Fine Foods’ marketing overview shows an aggressive plan on how the organization will change certain aspects in different areas of the company. There is plan for a new frequent shopper program, which is nontraditional in a sense and will give customers rewards instead of discounted prices.

Ideas on how to expand the organizations services to for its customers increase revenue as well as how to increase efficiency and cut costs for the company are also mentioned. The expansion of services will include offering parties in the store to teach the consumer on how to prepare properly gourmet dishes using items sold at the store locations. These sessions will be conducted be celebrity chef, food experts, and others. Merchandise selection and pricing is also addressed in the marketing overview.

Providing total customer satisfaction by way of constantly introducing new food items is the focus on how to accomplish this task. The marketing surveys for Kudler Fine Foods shows an average of about 71% of customers shopping at the Kudler Fine Foods to be satisfied all around. However, the customer satisfaction rate did drop by 1. 02% from 2011 to 2012. Although a one percent drop in customer satisfaction is not largely significant, if the issues in which the drop is associated with are not addressed, Kudler Fine Foods can expect a bigger drop every year as customer find newer stores to shop at.

Looking more closely at the surveys, they focused on the stores hours, atmosphere and decor, selection of products, whether the merchandise was a good value for the money, attractiveness on how the merchandise is displayed, satisfaction with the purchased merchandise, if the customer service representatives were courteous and knowledgeable, and the customers over-all satisfaction with the store. Although most of the areas the surveys touched on showed a customer satisfaction rate of 70% or more, there were a few areas that were at a satisfaction rate in the 60% range.

However, the survey results do show one area in which the customers were more dissatisfied than satisfied in both 2011 and 2012. This area was whether the merchandise sold was a good value for the money. In 2011, 58. 22% of customers were dissatisfied in this area. That number went up to 58. 83% in 2012. Although not a large increase in percentage, this still does reflect the dissatisfaction rate in this area is climbing every year. Kudler Fine Foods organization appears to fall under the monopolistic competition market structure.

First, in the strategic plan it states “Kathy Kudler is the vision behind the organization. She intends to grow and expand the business for 10 – 15 years, at which time she will reach retirement age. Her intent is to sell the entire organization at that time and no longer be involved in the operation”. This signifies that there is an easy entry and exit in this type of market, which is a feature of a monopolistic competition market structure. Second, in the Competitive Analysis section of the strategic plan it lists multiple stores in the same area as the Kudler Fine Foods location are and sell similar products.

However, since the products being sold at these other stores are not exactly equal in brand and quality as what Kudler Fine Foods offers, this also points to the organization as being a monopolistic competition market structure. Although Kudler Fine Foods is defined as a monopolistic competition type market structure, it does not fully fall under the same set of rules that a full monopoly type organization has. For instance, Kudler Fine Foods can set prices for the products it sells because its competition only offers similar products rather than exact product.

However, if Kudler Fine Foods sets its prices too high, its customers have the option to shop for similar products elsewhere where the price is more to their liking. Kudler Fine Foods must find the precise price where it can maximize profits but not run their supply to low where the run the risk of not being able to meet the customers’ demands. Once Kudler Fine Foods finds the correct equilibrium price, it can expect to see long-term profits. Some recommendations of competitive strategies for Kudler Fine Foods would be to continue to offer new products to their customers on a regular basis.

Offering new products that competitors do not offer will ensure that Kudler Fine Foods controls that portion of the market. Another recommendation for Kudler Fine Foods would be to investigate and determine why eight months out of the year their profits are lower than the other four months. After concluding why this is, Kudler Fine Foods should proceed with a more aggressive ad campaign, initiate special product pricing, and any other strategies to increase their profits in these low performing months.

A company comparable to Kudler Fine Foods would be Williams-Sonoma. With 252 locations that p 45 states, four provinces, and two countries, the Williams-Sonoma organization is enormously larger than Kudler Fine Foods, but offers the same type of products. These products range from organic and gourmet foods and wines and high quality and high priced utensils, cookware, bakeware, and many other items needed to produce a gourmet meal.

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