Market Structures Oligopoly and Monopoly

There are four types of market structures. However, this essay will only delve into two market structures, which are oligopoly and monopoly. In the case of a company operating under an oligopolistic structure, the essay will use Coca Cola as the case study, while in the case of a company operating under a monopolistic market structure, the essay will focus on Colgate as the case study. A market structure comprises of the traits of players in a given organization. The distinctiveness is majorly founded on the pricing strategies and the competitiveness of the firm in any industry (Arinitwe 2019). The structure of any market is determined by such elements like product differentiation, firms’ market share, the turnover of clients, nature of costs and the total number of players in the market. The essay will examine more the various competitive strategies, effects of the structures to the firm and efficacy as a result of the company's structure. The Coca Cola company and Colgate are perfect examples of organizations in an oligopoly and monopoly market, respectively.

Coca Cola

Soft drink industry can be perceived to be oligopoly because of various reasons. First of all, only two multinationals control the a huge percentage of the market share, which are coca-cola and Pepsi. It does not, however, mean that there are no firms in this industry, the truth, however, is that there are smaller firms that operate within the industry; however, their market share is negligible as compared to the two dormant companies (Mariuzzo, Walsh, and Whelan 2003). Furthermore, these small companies do not have the capacity and financial capability to launch a top brand on a large scale. Besides, the barriers to enter the industry are very high, since manufacturing soft drinks for a broader market needs lots of capital for production, branding and marketing (Álvarez 2016, p.1). The high costs of operation associated with this industry have prevented various companies from engaging in this business. Lastly, the trend has been that the two companies engage each other in non-price product differentiation.

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In most cases, Coca Cola or Pepsi will not undercut the other on price. Instead, these entities always apply creative advertising to compete with each other (Hong and Li 2017, p. 155). Both Pepsi and Coca Cola manufacture products that have a similar taste and target the same consumers, but they majorly focus on branding themselves differently from the other and pricing their products a little different from the other.

Due to competition and the changes in the market, Coca Cola uses dynamic pricing theory. Dynamic pricing is the practice of altering prices in real-time, depending on the fluctuations in demand and supply. For Coca-cola the dynamic pricing is not only controlled by the demand and supply, preferably by the market's policies, and the cost of production, since the company operates in different countries (De Vos, Köhne, and Roth 2018). Besides, the dynamic pricing model enables the company to penetrate new markets, conduct promotions and encourage more consumers. For example, during the festive season, the company is likely to come up with favourable offers that encourage more consumption and bulk buying.

Both Coca Cola and Pepsi work with each other to control the market prices of their products. This a group plan that burrs new entrants from entering the market and from succeeding in the industry. Pricing adjustments are also conducted as per the principles of the kinked demand curve. It implies that Coke lowers its prices at certain times of the year, such as the summer, and festive seasons to maximize their profit shares. In other words, it means that the company’s products are highly elastic, and any slight decrease in the price of products is likely to lead to high turnover. Product elasticity and game theory pricing framework are critical drivers for profit maximization. The collaboration between Pepsi and Coca Cola ensures that they limit the number of new entrants into the market and retain their profits. Such joint competitive strategies work in favours of two oligopolistic companies, but also shield the consumer against exorbitant prices (Campos-Vázquez and Medina-Cortina 2019, p. 3). This is because if one company drops out of business, the other one is likely to control the prices alone and hence high product prices.

One advantage to the oligopoly structure to Coca Cola comprise of price stability because the company uses the kinked demand curve; this structure allows the company and its main competitor an equal opportunity to control prices. It implies that Coca Cola enjoys a non-price competition. Furthermore, the oligopolistic structure allows the company to enjoy economies of scale because of the limited number of companies in the same industry, and the shallow threat of new entrants because of the high barriers set by the structure. The disadvantage, however, is that Coca Cola always has to maintain a tremendously high amount of capital investment to limit the new entrants into the industry. Coca Cola cannot also decide the prices of its products without consulting with Pepsi, which is its main competitor. The product prices have to be the same so that this system can be sustainable and work effectively.

There is a tight competition between Coca Cola and Pepsi. Even so, Coke has proved to be capable of taking a larger market share. Some of the strategies that have been used by Coke include distributing the product widely for easy customer access as compared to Pepsi. Besides, the company has embarked on a massive advertising strategy using celebrities, billboards, and promotions, which has made Coca Cola more popular than Pepsi. The company also enjoys convenience because of pioneer status in the market; such a strategy leads to a mental preference among the consumers.

Göçen, Albeni, Yirik, Yildiz, and Akdere (2017, p. 650) argued that Coke had mastered the art of monopolizing stores, such that consumers are left with no option but to buy the available product. Additionally, the pricing strategy gives Coke products a competitive advantage over Pepsi. Coke has products that range from high prices to low prices, which makes the products affordable for everyone. The branding strategy used also complements the pricing strategy; the company packs some drinks in smaller bottles at a lower price compared to the large bottles at a higher price and therefore leading to increased affordability.

Colgate

The Colgate Company is in a monopolistic market structure. The company manufactures differentiation products, which imply that there are various products under the same name. For example, the company manufactures mouth wash, toothbrushes and dental floss. In a monopolistic structure, Colgate toothpaste faces stiff competition from other companies that produce the same products but under different brands. Colgate has a considerable consumer base partly because it was the pioneer company to introduce toothpaste. The dental care industry has so many players, which is an indicator that it is easy for any company to enter the business. At the same time, the closure of one business does not affect the business of others. In a monopolistic market, companies might gain economic leverages when they can control the prices of their products to derive more profits than in a perfect competition market.

Besides, Colgate has to emphasize more on advertisement so that it can compete with other entities in the market, which means that it has to direct more capital on marketing and to advertise its products (Simon 2016.). It is only through such strategies that Colgate can gain a competitive advantage of over other players in the industry.

Colgate uses a competitive pricing scheme in its marketing mix strategy. The company’s products are priced at a similar rang or at a slightly higher price in comparison to its competitors. The company charges premium prices for speciality products as it is targeted at a niche segment. Colgate’s products are designed to target everyone in the society by providing products that have different price ranges. Higher prices are justified by the extra ingredients that give extra more benefits to the consumer (Hawn and Kang 2018, p. 336). Besides, the company packs its products in different sizes to cater to the needs of different people. These package quantities range from 50g to 500g. The company also bundles its tubes of toothpaste with toothbrushes to make the product look more appealing to its consumers.

The products produced by Colgate are elastic since any alteration or adjustment downwards on the pricing of the company is likely to increase the demand for the product. However, in emerging economies where Colgate has established its operations, elasticity is likely to differ because of the purchasing power of the consumer, but the trend tends to remain the same. For example, if Colgate reduces the prices of its products in the United Kingdom, it is likely to realize more sales volume as compared to when it reduces product prices in Nigeria. A common factor is that it is likely to increase its sales volume in both economies, but the magnitude differs.

The changes in pricing and subsequent adjustments would have a direct impact on the demand for Colgate's products. The demand for any product is determined by the level of consumption of a product and consumers are either attracted or retracted by the pricing of a product. The fact that there are various players in the industry renders the pricing of various products manufactured by the company a huge factor to be considered and one that has a direct impact on product consumption.

In a bid to lessen the production costs, Colgate outsources manufacturing capital from states which have lowered costs of production; this means a lowered cost of labour, land and raw materials as compared to its parent state. The outsourcing ensures that the company records an increment in profits while keeping the production costs low. The process of outsourcing helps the company to realize an increase in its profits, while at the same time keeping its production costs low (Kichamu 2018). Such a framework ensures that it is the company has a competitive advantage of its rivals in the market, especially when it comes to getting the required raw materials, and even in the process of determining the prices of products because the company would already be enjoying economies of scale.

In most cases, clients often go for the products that they perceive to be of high quality. In most cases, the same clients would be willing to buy a product at a higher price as compared to other products, if the targeted product is perceived to be of high quality. Colgate ensures that the quality of its products is slightly above the quality of its competitors to satisfy the needs of their consumers (Baah and Bohaker 2015, p. 15). If customers are assured of enhanced quality, they are likely to go for the product, even if the new entrants in the market provide the substitute product at a lower price.

Lastly, advertisements play an essential role when attracting and creating awareness about a product in the market. If a client is accustomed to seeing a product being marketed, their interest in the product tends to grow. Colgate advertisements always show why clients should purchase the product; such a movement creates a more extensive consumer base for the company, while the remaining segment is shared among the competitors (JOSHI 2018). In such a setup, it would be challenging for a new market player to enter in the industry because of the risk of making meagre profits due to few customers available; low consumptions always lead to lack of business sustainability.

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Variations in business operations are likely to directly have an impact on both the fixed and variable cost. Variable costs are also likely to increase because the number of goods that are produced by Colgate would record an enhanced sales turnover because of the pricing elasticity of the products. Contrary, fixed costs are not likely to change in any way irrespective of the changes experience by the product. This is because the administrative costs and infrastructure are not likely to be affected in any manner by the enhancement of demand for the products of Colgate.

References

Álvarez, G.N.V., 2016. STRUCTURE, STRATEGY AND MARKET POWER OF GENOMMA LAB. Prestige International Journal of Management & IT-Sanchayan, 5(2), p.1.

Arinitwe, L., 2019. Effect of advertising in the soft drink market on consumer behaviour: A case study of COCA-COLA in Makerere University (Doctoral dissertation).

Baah, S. and Bohaker, L., 2015. The Coca-Cola Company. Culture, 16, p.17.

Campos-Vázquez, R.M. and Medina-Cortina, E.M., 2019. Pass-through and competition: the impact of soft drink taxes as seen through Mexican supermarkets. Latin American Economic Review, 28(1), p.3.

De Vos, R., Köhne, M. and Roth, D., 2018. "We will turn your water into Coca‐Cola": The atomizing practices of oil palm plantation development in Indonesia. Journal of agrarian change, 18(2), pp.385-405.

Göçen, S., Albeni, M., Yirik, Ş., Yildiz, H. and Akdere, M., 2017. Competition, market structure and market power within the hotel-supplier sector in Antalya, Turkey: The case for technology integration. Tourism Economics, 23(3), pp.647-668.

Hawn, O. and Kang, H.G., 2018. The Effect of Market and Nonmarket Competition on Firm and Industry Corporate Social Responsibility. In Sustainability, Stakeholder Governance, and Corporate Social Responsibility (pp. 313-337). Emerald Publishing Limited.

Hong, G.H. and Li, N., 2017. Market structure and cost pass-through in retail. Review of Economics and Statistics, 99(1), pp.151-166.

JOSHI, A.K., 2018. A STUDY ON RATIO ANALYSIS OF COLGATE PALMOLIVE INDIA LTD FOR FIVE YEARS (Doctoral dissertation, JAIN UNIVERSITY).

Kichamu, D.A., 2018. The Influence of Brand Personality on Brand Choice: A Case of Colgate Palmolive in Nairobi (Doctoral dissertation, United States International University-Africa).

Mariuzzo, F., Walsh, P.P. and Whelan, C., 2003. Firm size and market power in carbonated soft drinks. Review of Industrial Organization, 23(3-4), pp.283-299.

Simon, B., 2016. Citizen Coke: The Making of Coca-Cola Capitalism. Agricultural History, 90(1), p.158.

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