Management, Monopolistic Competition and Oligopoly - Essay Example

In a monopoly, a company is the only supplier of a particular product and can therefore set the price of the product. Strategically, a firm that has a monopoly wants to keep any competitors from entering the market and can do so through force, lobbying, or collusion. A firm that owns a monopoly wants to keep other companies out of the market so they can set the price of the product to maximize profit.

In monopolistic competition, the price that other firms set for the product is not as much of a concern for the firm strategically because there is a product as well as brand differentiation. Therefore a firm can set its price without being influenced too much by competitors. In the long run, monopolistic competition becomes more and more like perfect competition.

In an oligopoly, strategic decisions made by a firm are heavily influenced by competitors because there are only a few sellers who control the market. A firm in this market structure often uses the same tactics as a firm that has a monopoly on the market to maintain or increase market share. Competition is fierce in this type of market which leads to lower prices and higher production.

2. Economic Factors
If a firm believes that the benefits of entering or exiting a market outweigh the costs, its desire to do so will increase. Some economic factors that affect a firm’s desire to enter and exit a market are market growth, profit sustainability of that market over time, industry life cycle considerations, technological opportunities, barriers to market entry, and the number of competitors in the market.

A growing market is more appealing to new entrants as is a market where growth does not appear to be slowing down any time soon. On the other hand, a declining market where there is no growth on the horizon is conducive to exiting. A market where product innovation is high also indicates that it is profitable to enter that market, whereas a market where product innovation has pretty much run its course is not a positive sign. Also, a “first-mover” has a better chance of making a substantial profit as opposed to someone who is trying to enter a market that has been around for a long time. Therefore, new markets are a good signal that entry will be profitable. Barriers to entry, such as the financial cost of entry, also discourage entry into a market. Conversely, the costs of exiting a market can discourage a firm from exiting.

As an example, Amazon.com entered the book-selling market because it knew it could offer more books online than other bookstores could at brick-and-mortar stores. They entered the growing market of e-commerce and although it took them a while to turn a profit, they are now one of the most profitable e-commerce bookstores and also offer a wide variety of products now besides just books. As the e-commerce industry has grown, Amazon.com has grown as well. However, it seems that larger companies in this industry have greater economies of scale. This is because they can generally produce more content, links, social media, and so on to generate more traffic than a very small internet marketing company with only a few people can.

There are relatively low benefits in attempting to bar someone from entering this industry because it tends toward perfect competition where there are low barriers to entry and relatively low start-up costs. So the best way to discourage people from entering this industry is to be capable of producing a lot of content, backlinks, and social media awareness. If you can produce more quality content and build more brand awareness you will be able to maintain or increase your market share. Also, if you are a more well-known internet marketing company you have a better chance of attracting new clients than someone who is just starting.

Basically, the only cause for concern is if an internet marketing firm fears that it will lose clients to new entrants into the market. If this is the case, the firm may want to consider other tactics to try and prevent entry. But again, this market is relatively easy to enter. Read More