Argos success in Oligopolistic market - Essay Example

 Argos success in Oligopolistic market 1. Market Structure Market structure mainly deals with the features or the characteristics of the market which includes the strength of the buyers and the sellers and the extent of collision that exist between them , the forms and level of competition , the extent of differentiation of products and the entry and exit of the market. The four main types of market are perfect competition are perfect competition that includes the buyers and sellers who are capable of influencing the price, oligopoly market which consist of large number of sellers with the ability of having full control over the price of the product, monopoly market which deals with a single seller with full control over the price and supply of the product and monopolistic market which mainly includes a single buyer that possesses full control over the price and demand of the product. The company that is selected for discussion is Argos that is operating as an oligopoly market and it is a UK based company. Argos has been regarded as the market leader and dominates a wide an important place in the market. Oligopoly market is considered as one of the important market structure out of the four market structure. But Argos at one point is operating in the economy with the perfect competition market structure where many and various firms or companies are competing. Each firm in the industry is small in size that is relative to the whole industry and the firms do not have the power of influencing the price and it is considered as the price taker in the market. Oligopoly is a market structure which is composed of very little number of firms and the entry in the market by the new firms are prohibited and restricted. Therefore oligopoly market structure is a structure where there is only little number of firms which enables the barriers to be active towards the entry of the new firms in the market (Picard, 2013). Figure 1: Market structure of Argos Source: (Friedman, 1983) The above diagram represents the scenario of oligopoly market that is experienced by Argos. The Above diagram represents that the market structure of Argos is mainly characterized by the dominance of the small number of producers in the market When the market share of the retail companies of UK are taken into consideration it is found that Argos occupies more than 17% of its market in its industry and this can be observed with the help of the following diagram Figure 2: Market share of Argos Argos is operating in the oligopoly market structure which is characterized by high barriers for entering into the market and also high cost is included for its entry in the new market. The main characteristics of this retail companies are that it is mainly characterized with monopoly structure and it does not compete in the international market but it competes within its own country where there is a composition of the various sectors in the market that is mainly dominated by many small number of companies for ensuring distribution in the service market (Satyr, 2005). 1.1 Company Profile of Argos Argos is the market leader in the home retail group and it is considered as the largest and the most popular market leader in the market and home merchandise market. Argos is regarded as the leader in the digital retail and it is offering more than 33000 products and it is one of the most famous and largest online retailers in UK. Argos mainly considers the function of cost for considering the different forms in the economies of scale. In order to match in the market to gain competitive advantage and survive in the market the company faces or encounters competition in the services that is being provided by Argos which is generally of superior value. The oligopoly market comprises of the following factors such as interdependency, losses that are sustained, abnormal profit and reserves and the market power. In case of Argos it reflects and focuses on the innovation, performance, and investment in the products and services that is mainly provided by Argos. Taking into consideration the competitive prices of offering various products and services of Argos it can be observed that the regulatory agency is mainly responsible for maintaining and also controlling the price of the products and services that is offered by Argos. The regulation of price is considered as a very complex and critical issue and therefore it is required to supervise the operation and the services of Argos. Argos which is considered as the largest and the most well known home retail group of the world mainly measures its performance by calculating its revenue and it carries out its operation across the world .The percentage of oligopoly competition in the market of united Kingdom is also very high. Argos provides potential benefit from the increase in the revenue and it enjoys the benefit as it deals with wide range of merchandise which includes jeweller and toys, consumer electronics, furniture, household goods and electrical appliances and it is also related and associated with recycling. And in order to remain competitive and create a barrier for other competitors to enter into the market it has entered into an agreement with the company named Hasbro that deals with toys and games. Argos operates in the oligopoly market and it creates a threat to its substitutes and in it is benefitted since it has a wide range of portfolio and its competitors and the rivals deals in the production and sell of differentiated products and the main characteristic or the feature of the oligopolistic market is that it deals in the strategic interdependence whenever the choice of the payoff of the firm depends on the choice or the preference of other firms or companies. The extent of interdependence in the oligopolistic market differs from that of the perfect competition and monopoly. And Argos enjoys its independence since it operates in oligopoly market therefore the competitors are less as compared to other types of market. 1.3 Barriers to entry The barrier to entry is regarded as the most important and the vital reason for the inconsistency in the market. The important factor or the feature for the barrier to entry are the product differentiation, absolute cost advantage that is experienced by the company and the economies of scale which are considered as the barrier for entry by the potential competitors. The other factors that can be held responsible for the barrier to entry for the competitors are the existence of patents, the absolute franchise from the government and the development of managerial talent. The new entrant mainly faces the problem of the increase in the additional cost that is required for committing its resources. The oligopoly market mainly comprises of the barriers to entry, inefficiencies, supernormal profit, cross subsidies and the prices that are not ideal. Argos is the market leader therefore it makes it difficult for other smaller retail company to enter into the market (Geroski, Gilbert and Jacquemin, 1990). The barriers of entry that is created by the oligopoly market in which Argos operates are: Economies of scale which restricts the other retail company to enter into the market, Differentiation in product which is regarded as another factor creating barrier to entry by the other companies or firms and the differentiation in the product enables or enforces the customers to increase their loyalty towards the product or the services that is provided by the company, minimum requirement of capital by the firms which restricts the small companies or industries from entering into the market. The barrier to enter into the market is considered as a threat and obstacle by the other retail companies of UK whereas the barrier to entry is considered as strength by Argos which signifies that it can gain competitive advantage. The oligopoly market creates a barrier for entry by the new firms because of its dominance in the market and it creates a threat or the barrier against its competitors for entering into the market. The obstacles for entering into the market is considered as the barrier to entry Figure 3: Economies of Scale experienced by Argos Source: (Goodlad, 2006) The economies of scale are considered as one of the most important factor creating a barrier to entry by the firm or the company. The barrier to entry secures Argos and restricts or prohibits competition of the companies within the same industry in the market and this may lead to the rise in the discretionary prices. The barriers are designed and characterized in the oligopoly market in order to restrict the entry of the new firms or the competitors in the market. The oligopolies market are considered and known as highly regulated market and the Argos is the company that has received licensed to conduct its operation in the retail industry in UK. And therefore the need or necessity of license and the grant of permission increases the rate of investment in entering into the market therefore it creates a barrier for the other firm to enter into the market. References Friedman, J., 1983. Oligopoly Theory. New York: CUP Archive. Geroski, P., Gilbert, R. J. and Jacquemin, A., 1990. Barriers to Entry and Strategic Competition. New York: Taylor & Francis. Goodlad, S., 2006. Economies of Scale in Higher Education. London Society for Research into Higher Education. Picard, R. G., 2013. Managing Competition Through Barriers to Entry. [Pdf]. Available at: http://www.robertpicard.net/PDFFiles/managingcompetition.pdf. [Accessed on 11 January 2015]. Sastry, B., 2005. Market Structure and Incentives for Innovation. [Pdf]. Available at: http://www.intertic.org/Policy%20Papers/Sastry.pdf.[Accessed on 11 January 2015]. Read More