The Difference between Duopolistic and Monopolistic - Jordans Banking Industry - Case Study Example

Duopolistic and Monopolistic Name The Name of the Class (Course) Professor (Tutor) The Name of the School (University) The City and State where it is located The Date Duopolistic and Monopolistic The monopolistic competition market structure is the market structure that is characterised by firms have many competitors, but each firm sells a slightly different product. The firms in the industry produce the similar products, but the products are not perfect substitutes. The characteristics of the monopolistic market structure includes the following; The various firms in the monopolistic market structure make their own independent decisions about the prices and output of their products based on their cost of production and market (Anzoategui, 2010). Each firm in the industry has access to knowledge about the industry. There are no barriers of entry. Firms can enter and leave the industry at will. The central feature that characterises this market structure is that the products are differentiated. Because of the considerable market power that each firm possess, each firm can set their own prices they are price makers and not price takers. Firms in this industry have to engage in high competition; hence there are high advertising costs. All the firms in the industry seek to maximise profits. The duopolistic competition market structure is a market that is characterised by only two competitors in the industry (Markusen, 2011). In realistic terms, this is an oligopolistic competition market structure that is used to define the market structure that only two firms are dominant in the industry. Under this competition structure, the competitors that exist in the industry have considerable influence in the market, which all the competitors in the market have to respond to the decisions taken by the other firms in the industry. The firms in this industry have a large degree of control in the market. This market structure is characterised by the following; there exists barriers of entry into the industry. In duopolistic market structure, concentration is an issue in the market because the market is controlled by the small number of firms. In duopolistic markets structures, the firms may either produce highly differentiated or homogeneous products. The difference between monopolistic and duopolistic competition market structure is numerous. In duopolistic market structure, the market is characterised by two competitors in the market while in monopolistic competition market structure is characterised by numerous firms that compete for the same market. In monopolistic market structure, the products produced are similar, but differentiated from each other while, in duopolistic competition market structure, the products produced can either be homogeneous or differentiated products (David Soberman, 2012). There exists barriers of entry in the duopolistic while there are no barriers of entry in the monopolistic competition market structure. There exists mutual interdependence in the pricing decision of the firms in duopolistic industries while, in monopolistic industries, there is interdependence in the pricing decisions of the firms; each firm can set its own prices. Monopolistic competition in Jordan This paper will examine the monopolistic competition structure in Jordan’s banking industry. Jordan is an upper middle income country with a population of 6.2 million people. Over 80% of the population lives in urban areas. The services industry in Jordan accounts for more than 70% of the GDP and employs about 75% of Jordan’s working population (Akroush, 2008). The Jordanian banking industry is a service sector industry the industry focuses on offering banking services to the Jordanian population. The products and services that the banks offer are similar but highly differentiated to suit the different needs of the bank’s target market, and the costs of offering those products. This fits the description of the characteristic of the monopolistic competition market structure, where there are numerous firms in the industry with each firm selling the same but slight different product from each (Group, 2011). Jordanians can switch from one bank to the other because the nature of the products and services offered by Banks in the industry are similar, with only a slight difference in the offerings of banking services. The availability of close substitutes of the products characterises the monopolistic competition structure of the Jordanian Banking industry (David Soberman, 2012). The Jordanian banking industry has 25 banks, and a network of 558 branches and 79 representative throughout the kingdom. This fits within the characteristics of the monopolistic competition structure of numerous competitors in the market. The 25 banks in the Jordanian banking industry characterise the competitive nature of the industry. The level of competition is very high in the Jordanian banking industry, with each firm trying to increase the number of customers (Anzoategui, 2010). There is huge competition has led to firms in the industry to invest in huge marketing in order to entice customers to take up their products. The similar products and services that the Banks in the industry offer necessitates the advertising so that customers can know the differences that exist in the products that they offer (Akroush, 2008). Product differentiation is the main central feature of monopolistic competition market structure; companies always strive to differentiate their products from their competitors. Jordanian Banks also use various product differentiation mechanisms in order to differentiate their products from their competitors. The various product differentiation mechanisms that The Jordan’s banking use in order to differentiate their products includes the following; physical product differentiation, market differentiation, human capital differentiation, and differentiation through distribution. In physical product differentiation the banks use things like colour, design and performance to tailor their products differently in the market (Anzoategui, 2010). This involves the banks using different colours and design features to represent different banking services that they offer, and in the product performance, the banks use this differentiation feature to highlight the values that customers get by using this feature. In marketing differentiation, the banks in the industry use various advertising and promotional feature to highlight their significant product differences to the customers. In human capital differentiation; the banks higher highly qualified personnel, train them, and differentiate them using distinctive uniforms so that they can be recognised by customers easily (David Soberman, 2012). The differentiation through distribution is the mean that the company employs in communication and informing customers about their existing and new products and features. In monopolistic competition market structure, companies use highly differentiated products, and this characterises he Jordanian banking industry. Jordanian banking sectors fully owned by the private sector, profitable and profitable. This is a privately owned industry this highlights the independence of the firms in the industry. The independence of this firms shows indicates the monopolistic feature Jordanian banking industry (Anzoategui, 2010). All competitors in the monopolistic competition market structure are profit maximisers because they seek to maximise their profit. The favourable conditions of the Jordanian economic environment have made the banking industry to grow by double digits in 2007 (Akroush, 2008). All the firms in the Jordanian banking industry and profitable, the profitability of these banks highlight the monopolistic nature of the industry. The pricing of the different products and services in the Jordanian banking industry is wholly determined by the individual banks in that industry. The banks in the banking industry are ‘price makers’ and not price takers. The barriers of entry and exit in the industry are non-existent. The Jordanian government has completely liberalised the banking industry to remove the barriers of entry that existed in the industry. The industry is fully owned and controlled by the private sector this shows the complete reduction of the barriers of entry in the industry (Anzoategui, 2010). The structure of the banking industry in Jordan is open to any new entrant in the market both in the financial and no-financial banking industry, although to offer banking services license is required. Knowledge is complete available about the industry, all players in the industry have access to the same information about the industry. This features of the Jordanian banking industry, characterise the monopolistic competition market structure; Jordanian banking industry is highly monopolistic. Duopolistic competition market structure The domestic Jordanian mail delivery services are characterised by duopolistic competition market structure. The Jordanian post Company is the government institution, and Aramex Company is a private company that deals with domestic mail express delivery services. There are other players in the industry, but the Jordanian main express industry is mostly controlled by this two firms. The dominance of these two firms in the industry characterises barriers of entry that exists in this industry (Vijay Mahajan, 2006). There exists barriers of entry in this industry because it is too costly for other firms to venture into this industry. The existing firms in the industry are exploiting the natural barriers of entry that exist in the industry in order to maintain their market position (Group, 2011). The capital and resource requirements for other competitors to enter the express mail delivery services industry is too large, and this f forms as the barrier of entry for most firms. In order for companies in the industry, to obtain value for their services they are required to exploit economies of scale. This is already exploited by the existing companies in the industry. The economies of scale and the high set up costs that exist in the industry are forming the barriers of entry for firms in the delivery of mail services industry (Vijay Mahajan, 2006). The artificial barriers of entry into this market involve the super knowledge that these companies possess over their rivals, and the limit pricing or low pricing mechanisms, which the Aramex and Jordanian Post, have set to limit new entrants into the industry. The other barrier of entry is the predatory acquisition by Aramex Company the company is expected to spend around $100 million for new acquisitions in 2013. The strong brands of Aramex Company and Jordan post company locks in the existing customers, in the market, this makes it hard for new entrants in the market to compete for the available market space (Markusen, 2011). The other characteristic of a duopolistic company is the interdependence of the firms they cannot work without each other. The other firm has to consider the potential reaction of the other competitor in the market before making a move. This interdependence between the firms characterises the duopolistic competition market structure. For example, if Aramex Company is considering to low its domestic delivery service costs, it must consider the potential reaction that Jordanian Post Company will do in response. Theses means that the company cannot make a move, or introduce a new product in the market without consider the likely or potential move of its competitor (Anzoategui, 2010). In duopolistic competition market structure, the strategy that the competitors takes are usually taken cautiously and in anticipation of the other competitors’ likely reaction. These companies have to make the strategic decision in interdependence nature that by taking into account other factors into consideration. The duopolistic nature of the market has affected both Aramex Company and Jordanian post limited move in making strategic decisions of whether both companies will compete with each other or work together. Whether to lower their prices or raise them and whether both company will implement new products and strategies, or wait and see what the competitor will do. The prices that duopolistic industries take are in due regard of the markets leaders’ position. The companies in the market are price takers and not price makers the prices adopted by companies in this industry is usually in due regard of the other competitors’ prices. In examining the prices of both Aramex Company and Jordanian Post Company; the prices in the market have been stable for a considerable amount of time. This characterises the nature of the duopolistic competitive market structure. The nature of competition in this market is usually non-price competition, in order to avoid price wars. The price reduction for companies in this industry may achieve the strategic objective of the company in increasing the market share, or, increasing the barriers of entry, but it has the danger of making the competition reduce its prices in response leading to minimal gain or no gain (Vijay Mahajan, 2006). So the valuable strategy in this industry is the non-price competitions. The price stability of the express mail delivery services in Jordan highlights the non-price competitive strategy that both companies have adopted. They have not reduced the prices of the domestic express mail delivery services in Jordan for a considerable amount of time. The non-price competition in the market has increased the advertising costs in the industry both companies are engaging in huge marketing and advertising strategies that seek to improve their market share. The Jordanian banking industry is operating under the monopolistic competitive market structure the industry contain 25 companies, and a network of 558 branches and 79 representative throughout the kingdom (David Soberman, 2012). The banks in the industry offer similar products but differentiated. The barriers of entry are non-existent all the banks in the industry seek to maximise their profits. All the companies are price makers they make all their decision regarding the prices to offer. All the firms in the industry are privately owned, characterising the independence of the firms in the market. The Jordanian banking industry is operating under the monopolistic competitive marketing structure. This paper also examines the duopolistic competitive market structure of the express mail delivery industry. In this industry, there exists only two dominant firm, which are interdependent to one another. Aramex Company and Jordanian Post Company are two firms that are engaged in the delivery of express mail services in Jordan (Markusen, 2011). There exists huge barriers of entry into the industry because such as huge sunk costs, branding, pricing, and predatory acquisition mechanisms. In this industry, both companies depend on each other in the decision making mechanisms. The interdependence of the firms characterises the duopolistic market structure. This essay also examine the difference that exists between the monopolistic and duopolistic competitive market structures. References Akroush, M., 2008. Exploring the mediation effect of service quality implementation on the relationship between service quality and performance in the banking industry in Jordan.. Global Business and Economics Review, 10(1), pp. 98-122. Anzoategui, D. M. P. M. S. &. R. R. R., 2010. Bank competition in the Middle East and Northern Africa region. Review of Middle East Economics and Finance, 6(2), pp. 26-48.. David Soberman, D. S., 2012. Flux: What Marketing Managers Need to Navigate the New Environment. illustrated ed. Toronto, Canada: University of Toronto Press. Group, O. B., 2011. The Report: Jordan 2011. London, UK: Oxford Business Group. Markusen, J. &. S. F., 2011. Endogenous market structure and foreign market entry. Review of World Economics, 147(2), pp. 195-215. Vijay Mahajan, ‎. B., 2006. The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the Next 50 Years. illustrated ed. Upper Saddle River, New Jersey: Pearson Wharton School Publish. Read More