Question

Topic: Student Questions

Market Type And More

Posted by Restricted on 10/1/2014 at 10:09 PM ET 250 Points
How would you be able to identify if a market is really a monopolistic or oligopolistic market? That is, I'm looking at espresso machines, and there are many sellers out there (even though you only see the brands that have high-end premium prices and products) and hence how would you be able to determine which type of market they are? Clearly there are also domestic niche markets in say, China, where they also distribute these products but at a lower-cost and most likely lower-quality as I've heard from a friend that resides there. In addition, I am not sure about the mechanics of the product itself, that is, would the market itself be that open to new entrants? Or is there a lot of capital investment required or research and development required or some other factor that makes it harder for new firms to enter? I couldn't find much information on the world wide web in regards to this, and so was hoping if there are any marketers or economists who are cognisant of this market field and could provide some insight?

I also found that most of these manufacturers don't directly sell to their customers, and rather they use intermediaries to do so. I would presume that this is for specialisation reasons and hence would be result in cost-savings since they can outsource these activties and focus on their own core objectives? Furthermore, clearly it is a competitive market, and I was wondering what makes an organisation's pricing decisions be influenced more by their competitors prices and offerings or, their resellers? In regards to the former, I would say this is of concern if they do not have anything that differentiates themselves from other competitors and is of concern in the lower-end market, however generally at the higher-end market there are manufacturers who have acquired patents for their founded technologies, etc, which can confer them a competitive advantage. In relation to retailers, well perhaps these retailers have pertained some sort of dominance in the market, and hence can have a huge influence on the margins they would like to acquire, hence affect the manufacturer's price setting decisions. How would you be able to determine which is the more influential factor in this case? Or would you argue for both?

Much appreciated.
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RESPONSES

  • Posted on 10/2/2014 at 9:00 AM Moderator
    Why is it important to label a market monopolistic or oligopolistic? Does the label impact any important marketing decision? Are those the only two options?
  • Posted by Peter (henna gaijin) on 10/2/2014 at 1:24 PM Accepted
    To determine monopolistic or oligopolistic market, you look to see what substitutes are available for the consumer. If there are no substitutes, then it is a monopoly. If few, then oligopoly.

    The most common reason for a monopoly is government intervention. Utilities and other areas where there are huge infrastructure demands are a reason why even capitalistic countries have monopolies. Even in the US, we often do not have a choice in who we buy our electricity from (so that power company is a monopoly).

    In less capitalistic markets, monopolies and oligopolies are also there as ways for the government leaders to assist friends or take bribes.
  • Posted by Peter (henna gaijin) on 10/2/2014 at 1:25 PM Member
    Wikipedia also has some good info on this - https://en.wikipedia.org/wiki/Monopoly
  • Posted by Restricted on 10/2/2014 at 8:57 PM Author
    You are right, it's probably not important, however I felt as though it is a good descriptor to delineate the type of market they are because it could be judicious in determining demand/supply factors.

    Also, would any one please be able to answer my 2nd query in my 2nd paragraph?
  • Posted on 10/2/2014 at 9:04 PM Accepted
    The price you charge is a clear and unmistakable expression of what you believe the product is worth.

    I do a lot of work with clients on pricing strategy, and it always comes back to that truth. If you charge more than your competition, it should be because you believe the benefit(s) you provide are worth more. If you charge less, then it's clear you think your product isn't worth as much as theirs.

    And if consumers/customers don't buy as much of your product as you would like, then there is probably a mismatch between what you think your benefit is worth and what they think it's worth. THAT is what needs to be fixed. Either that or they'd rather pay more to get a perceived higher-value benefit.
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