Microeconomics Concepts toward the Competitive Strategies of Riordan Manufacturing - Essay Example

Microeconomics concepts toward the competitive strategies of Riordan manufacturing Introduction Microeconomics is a sub-unit of economics that is concerned with analyzing the market behavior of individuals and firms in order to evaluate the decision making process of both the firms and individual consumers. Through the study of microeconomics, people are able to comprehend the relations between buyers and sellers in the market. Several firms exit in an industry and therefore it is important for firms to device unique strategies to leap maximum benefit. In addition, the choice of a market structure is a basic determinant of a firm’s survival in an industry. It is significant for a firm to consider microeconomics concepts such as scarcity and choice, opportunity cost, economic growth and many others in order to make fruitful decision. Riordan manufacturing is an international firm in the plastic industry. The firm is in a perfect competition market structure and faces stiff competition from other plastic manufacturing companies such as the Roth Global Plastics Limited. Market structure Market structure is basically the organisation and features of a market. There are four basic market structures that can exist in an economy which are; pure monopoly, oligopoly, perfect competition and monopolistic competition (Norman, Thisse & Phlips, 2000). In a pure monopoly structure, there is only one producer supplying the entire market. The product offered by a monopolist has no close substitute and therefore the firm is the price marker. In addition, there are barriers to entry in the industry. Oligopoly emerges where few large firms that produce homogeneous or differentiated product command a large market share for instance in the automobile industry. There are no barricades to entry in oligopoly market structure, but the large investment capital required deters new firms from entering the industry. A monopolistic competition refers to a market structure where there are many firms selling a similar product that are not identical. In essence, the products are differentiated through such means as branding, packaging and pricing strategy to make them unique and more appealing buyers more than those of the competitors. Another distinct feature of monopolistic competition is that there are no hindrances to entry in the industry like in a pure monopoly setting. The last market structure is pure/perfect competition in which has many firms selling indistinguishable products to a large number of buyers. As a result of high competition, firms in a perfect competition structure are price takers since single firms have no influence on market price. In addition, there are blockades to entry or exit in the industry. However, perfect competition structure is a rare situation in the real economic world. Each market structure has got its own merits and demerits and each is suitable for different industries. Competition in an industry is usually contributed by factors such as financial supremacy of suppliers, bargaining power of buyers, threat of new firms, rivalry among old competitors and substitute products. Riordan Manufacturing market structure Riordan Manufacturing competes in a monopolistic competition market structure. Solow, (1999) argues that, for a firm to make profits under a monopolistic competition production should take place when marginal cost and marginal revenue are equal. Riordan operates in the same industry with large firms such as Roth Global Plastics. External pressures from such firms has made Riordan company to concentrate on infrastructure development and product improvement. In essence, Riordan Manufacturing Company has a strong profit incentive to indulge in product development as it depends on differentiation to survive in the competitive industry. The company’s success in the competitive plastics industry can be attributed to its ability to afford heavy capital investment on product differentiation, advertising and promotion. Riordan Manufacturing has established an internationally recognized brand name which has enabled the company to open new branches across the world and lead the plastics industry for a long period. The financial power of the company has facilitated development of unique packaging styles that are not affordable to many of its competitors. Effects of monopolistic competition to Riordan manufacturing Positive Riordan manufacturing is able to manipulate the price for its product due to its strong product differentiation strategy. In fact, it holds a large market share because of its brand name and high quality products which have been popularized by media and internet advertising. In addition, monopolistic competition market structure has enabled the company to constantly improve and develop the quality of the product. In fact, the company’s positive reputation has been facilitated by the quality of the product produced. Negative It is very expensive to survive in a monopolistic competition market structure. For instance, Riordan Manufacturing spends a lot of money on advertisement, product differentiation and promotion. Additionally, a lot of money is spent on market research and product development. Competitive strategies that Riordan Manufacturing may use Riordan manufacturing may use competitive strategies such as product differentiation strategy, cost leadership strategy and timing strategy among others to maximize profits. In order to operate a successive differentiation strategy, Riordan manufacturing should invest heavily on technology and market research. In fact, extensive market research is important for evaluating consumer taste and preference in the target market. Use of advanced technology will facilitate manufacture of unique plastic products designs and therefore win more customers (Sutton, 2001). In essence, product differentiation has enabled Riordan Manufacturing to lead the plastics industry for a long time. Generally, differentiation strategy is suitable where the market is competitive and the target market is not price sensitive. Essentially, differentiation increases a company’s profitability in the sense that a company can change prices without losing customer. Uniqueness of a product resulting from differentiation helps in boosting customer loyalty. In reality, differentiation may boost sales to a great percentage thereby earning a company a lot of profits. Firms operating in a monopolistic competition market structure must ensure that the differentiated product match the buyers expectation for it to be economical. Cost leadership strategy aims at producing at a lower cost compared to other firms in the industry. For cost leadership strategy to work effectively, Riordan Manufacturing should ensure that the cost of production is maintained at the lowest level possible. Reducing cost of production requires proper planning of the production process. It entails reducing the labor cost and other overhead expenses involved in production. Use of modern technology and automation of some services may help in minimizing production cost. Low production cost enables a firm to sell its product at a relatively lower price than that of competing firms or the existing market price and make the desired profit. Essentially, cost leadership competitive strategy is an effective mechanism to ensure business profitability in a competitive market. Riordan manufacturing may use proper timing strategy when introducing a new product in the market. Timing is a technical strategy that might assist to avoid unhealthy competition with rival firms in the industry. The marketing department of Riordan Manufacturing Company should be very tactical in its marketing mechanisms to ensure that products are introduced on the right moment to avoid suffering huge losses. In essence, timing might change the performance of a product in the market within a very short span. Therefore, Riordan manufacturing should research the target market properly to identify the appropriate time to introduce a product or to advertise. Interaction with other market structures Riordan Manufacturing has a large market share in the plastics industry. Being a international company, its products are demand across the world by large companies and government parastatals such as airline companies and automobiles. In most instances, airline companies are operate under oligopoly market structure. Since plastics are some of the components required in the manufacture of air craft’s, Riordan Manufacturing is capable of working with such oligopolies. Recommendations Riordan Manufacturing should invest more on new technology and market research in order to develop more advanced products that are in accord with the current technologies. This will not only boost production but also profit maximization. The company should put up more infrastructures that will accommodate new technology and modern production machinery. Sufficient infrastructure will aid in reducing production cost and the company will be able to practice the cost leadership strategy. The company should liaise with other large firms in the industry to share vital information regarding modernization of the plastics industry. In addition, working with other firms will allow the company to enjoy the economies of large scale The company should also invest on training its worker in order to prepare them for working with the new technology. Conclusion Study of microeconomics is helpful in understanding factors that influence decision making of buyers and sellers. In addition, it aids in evaluating the role of demand and supply in price determination. There exist various types of market structure in an economy which have distinct features that fit in different industry. Riordan Manufacturing is a international manufacturing company which competes in a monopolistic market structure. Monopolistic competition bears both positive and negative effects to Riordan Manufacturing. In order to maximize profitability, Riordan can apply viable strategies like cost leadership, differentiation and appropriate timing. References: Norman, G., Thisse, J. & Phlips, L.(2000). Market structure and competition policy: game- theoretic approaches. Cambridge [etc.]: Cambridge University Press. Solow, R. (1999). Monopolistic competition and macroeconomic theory. Cambridge [u.a.]: Cambridge Univ. Press. Sutton, J. (2001). Technology and market structure: theory and history. Cambridge (Mass.); London: MIT Press. Read More