Market Structures

Sep 19, 2019
folder_opencategory: Management

Introduction

A market structure refers to the trading environment in which a business or firm produces and sells and produces services or products. In microeconomics, a market structure is characterized with three features, namely the number of firms trading in that market, ease of exit or entry of companies in the market and how much the products sold are differentiated (Pindyck & Rubinfeld, 2005). The main types of market structures include monopoly, oligopoly, perfect competition and monopolistic competition. There are also other types like oligopoly, monopsony and duopoly but they are not so common. In any market structure, a firm needs to identify the variables under which it is operating to make sure that the decisions taken are in the line with improving its competitiveness thereby guaranteeing its perpetuity. The current paper analyzes different market structures and their effectiveness from the perspective of Pilgrim’s Pride Company.

Pilgrim’s Pride Company

Every industry is made up of many firms. Focusing on the meat processing industry, more specifically dealing with food and beverages in the US, there is the Pilgrim’s Pride Company. It was founded in 1946 with its headquarters based in Greeley, Colorado, United States. The firm is known to be the largest producer of chicken meat in the USA. Pilgrim’s Pride products are primarily distributed through retail outlets and food services (Pilgrim’s, n.d.). The firm competes in a monopolistic market. This is explained with the fact that the industry in which it operates contains many companies, and the products it sells are manufactured by many firms. There are also numerous buyers of these products. The market has no major barriers to entry or exit. Another factor is that, in most instances, the products are slightly differentiated so that they do not look very identical to those of competitors. Besides this, there is little or no government intervention to market activities. Knowledge in the market may be widely spread among firms, but it is imperfect. Producers want to maximize profits while consumers aim at maximizing their utility (Hubbard & O’Brien, 2006). It would be necessary to note that firms in monopolistic competition markets are price makers, and they engage in advertising procedures to market their products.

Market Structures

Monopolistic competition market structure differs from the other types in various ways. With respect to the number of firms (sellers) operating in the market, there are many independent firms in monopolistic competition. Perfectly competitive markets have many firms operating in the market which may not necessarily be independent. There are a few firms in an oligopoly market structure (Hubbard & O’Brien, 2006). Under a monopoly, there is only one seller. In relation to the level of knowledge of the market, there is imperfect knowledge in monopolistic competition while perfectly competitive markets include perfect knowledge. Monopolistic competition firms differentiate their products while products in perfectly competitive markets are homogenous (Hubbard & O’Brien, 2006). However, both monopolistic competition and perfect competition markets have no barriers to entry or exit, and there is minimum government intervention. It is important to mention that both oligopoly and monopolistic competition markets do rigorous advertising on their products to increase their sales.

Pilgrim Pride Company Analysis under Various Market Structures

Focusing on the Pilgrim’s Pride Company, if it was operating in oligopoly, the level of competition would not be very different from the level it is in when operating in monopolistic competition. Firms in oligopoly markets make differentiated products for which rigorous advertising has to be done (Pindyck & Rubinfeld, 2005). The same case applies to products under monopolistic competition conditions. This differentiation will help the firm achieve market power and hence be in a position to resist competition easily. If the company was operating in a perfectly competitive market, the level of competition would be significantly higher than it currently is. This can be explained with the products in the market being homogenous (Pindyck & Rubinfeld, 2005). For that reason, it would make no difference which product to but since all of them would be similar. This means that it was the firm’s responsibility to woo customers to buy its products using means other than physical product features. If it was operating in a monopoly market, the level of competition would be infinitely low since the firm would be the only seller of the products in question. Monopolists do not have anyone to compete with since all buyers have to come to them for their products.

Competitive Strategies and Effectiveness

To maximize profits in business, one should ensure that the competitive strategies in play are monitored and fully implemented to maximize profits in the long run. For the Pilgrim’s Pride Company, it may choose to utilize the cost leadership, differentiation and focus strategies. It is vital to understand that the more a firm’s strategies bear a resemblance to those of another firm, then the greater is the competition between the two firms (Pindyck Rubinfeld 2005). For this reason, a company should create unique strategies or at least try to differentiate their strategies from those of competitors. For example, in monopolistic competition markets like that of Pilgrim’s Pride, the firm can use the cost leadership, differentiation and focus strategies to have a competitive advantage over the rest of the companies in the industry.

The aim of the cost leadership strategy is to market the firm as the cheapest supplier of the product in question. For example, Pilgrim’s Pride may decide to sell its chicken products at a lower price than that of its competitors. However, there are a lot of technicalities involved. The firm must reduce its costs of production so as to increase the profit margin. When the price is lower than that of competitors, it will attract more customers and vice versa. The result will be an increase in the demand for its products if they have an elastic price. Therefore, it would be important to note that if the products that the company sells have an inelastic price then the cost leadership strategy may not work.

When using this strategy, the firm must consider the relevant government strategy in the market. For example, the government might set a minimal price below which a product’s price cannot fall. Setting a price lower than the established will mean that the firm may be sued and other measures can be involved which are not beneficial to the firm at all. Therefore, there is a limit to which the price can fall (Hubbard & O’Brien, 2006). For Pilgrim’s Pride, this strategy may work since it is a large firm and, therefore, enjoys economies of scale. However, cost leadership may result in a bad reputation if consumers rate the products to be of low quality. This will make the process of rebranding very difficult if the company decides to change its competitive strategy in the future.

The company may also choose the differentiation strategy to keep up the competition in the market. This strategy may take the form of physical product differentiation where the firm uses a distinct color, shape and size of its products (Hubbard & O’Brien, 2006). The company may also decide to differentiate by marketing. It may use online shopping such that the customers can place orders online. Another alternative would be to differentiate through the human capital it employs. This may apply when the firm employs skilled staff or the staff using unique uniforms. However, it would be essential to note that the differentiation strategy can only be effective when the consumers have specific needs that are not fully served and the company is capable of satisfying these needs. Differentiation only maximizes profit if the added price of the product exceeds the additional expenses to differentiate the products.

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Moreover, the company can utilize the focus strategy. This involves concentrating on serving a narrow group of consumers (Hubbard & O’Brien, 2006). This will mean that the firm must make certain specifications that would attract particular group. For example, Pilgrim’s Pride may decide that it will concentrate on supplying its chicken products to a specific state in the USA. This will increase customer loyalty. However, it would be important to consider the government regulations regarding the products supplied. For instance, the government might set a maximum of minimum price. Moreover, it might establish the requirements to quality and quantity of goods supplied to the market. Another concept is the expected changes in demand and supply. The firm should ensure that it chooses to focus on an area with an expected increase in demand for chicken products. Otherwise, a decrease will mean lesser profits in the future. It should also choose an area in which the supply of these products does not match the demand hence there is a market gap. Therefore, when considering on which area to focus the firm must consider these factors to avoid future disappointments.

Ethical Implications

Ethics refers to the prescribed or accepted code of conduct (Boylan, 2001). If the firm decides to go for the cost leadership strategy, there is a possibility that if it reduces the price to a certain level small businesses will be forced to exit the market. Therefore, there is an extent to which this strategy is noble, and that is when it allows for a healthy competition. Beyond this price, the practice does not meet the ethics requirements in business and more specifically in the firm. This is also not noble. Both the differentiation and focus strategies are decent in that they do not really affect the existence of the other small firms in the industry. Therefore, if all other factors are constant, these strategies are noble and align with the company’s code of conduct.

Conclusion

It is important to note that every firm’s main objective is to maximize its profits. However, various factors come into play regarding the strategies it should utilize to remain competitive in the market and the ethics involved. Therefore, it is important for the company to determine the type of market structure it operates in so as to make informed decisions concerning the business and, what is most important, to remain competitive in the market. From the above illustrations, one can see that any market structure has its unique traits, and identifying them and realigning accordingly will go far toward ensuring a more productive production.

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