fw market place competition 2

7/29/2019 Fw Market Place Competition 2

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MARKET PLACE

COMPETITIONBy Francis Wachira

Part 2


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DIFFERENT MARKET

SCENARIOS

When you are in equilibrium with yourcustomer , he/she getting their need satisfiedwhile your company enjoys exclusive sales and

huge profits, one would probably wish that thatcould go on forever .

This seldom happens, for other people see whatyou are doing and decide they can do it better.

When they come from a position where theyhave nothing, they will often be prepared tomake less because to them less is more.


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MONOPOLIES AND

MONOPSONIES

MONOPSONY- A market situation withmany sellers but only one (a few) buyers

MONOPOLY- A market situation with manybuyers but only one (a few) sellers


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MONOPOLY


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Perfect monopoly faces no direct competitionand can therefore impose its will on consumers.Most monopolies become very inefficient and

may collapse if exposed to competition.

In practice, the monopoly situation is rarelysustainable and soon develops to an oligopoly

before sliding onto perfect competition. Conventionally any company controlling 25% or

more of a national market can be regarded as amonopoly.

You may also have localized monopoly where acertain village, town et cetera have only onedominant player


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Factors That Lead to Monopolies1. Legislative

where the laws prevent other entrants e.g. KPLC ,TELKOM, POSTA etc

2. Coercivewhere someone powerful uses force and other non-judicialmethods e.g. mafia, mungiki, politicians etc

3. Intellectual or Exclusive rightswhere a product has no near substitutes and is patented,copyrighted or protected by any other means, or where onlyone company has a unique formulae

4. Sourcewhen one company controls the only viable source of a keyraw material including a human resource with uniqueknowledge e.g. a neuro-surgeon, scientist etc

5. Marketing

Companies with superior marketing including promotionalcapacities can develop into monopolies


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DEALING WITH A MONOPOLY

Avoid open combat, you strategies must be ofthe guerilla kind.

One option is to come up with a close me tooproduct

Another option is to introduce competition onthe generic level

Lobby governments to change laws or. Lobby the opposition in the hope that if they win

they could reverse restrictive legislation Lobby for strict adherence of the anti-

monopolies act.


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Examples of monopolies

Yana Tyres

Nairobi StockExchange

Davis &Shirtliff

Kenya RevenueAuthority

Daily Nation

Kenya Power& Lighting Co.


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OLIGOPOLIES

OLIGOPOLY

market with few sellers, many buyers.

OLIGOPSONY

market with few buyers and many sellers

DUOPOLY

two dominant players


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In a classic oligopoly 4 companies control

about 50% of the market without any onecompany having more than 25%


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Features of an Oligopolistic Market

i. There are few players who know each other well

ii. They compete on price and quality

iii. Product decisions are mainly focused on the tangibleand augmented product.

iv. Most oligopolies avoid price reduction to avoid a pricewar that could be suicidal.

v. There is a big temptation to contact competitors andform a cartel to fix prices. (cartels are illegal as they

hurt consumers)vi. In the long run, oligopolies are not stable, they move

towards perfect competition or monopolies throughmerges and acquisitions.


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COURNOTS MODEL

Cournots model shows that the demand curvein an oligopolistic market is kinked. When onecompany increases its prices, the others do notfollow leading to consumers switching to othersand therefore an elastic reaction.

Conversely, if one company reduces their prices,the others follow suit immediately with nosignificant consumer switching the sales remainthe same.

In elastic reaction equilibrium is where the kinkis.


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Price

Otty


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Price Wars

In a price war, the competitors try to outdo one another in price. If they keep onreducing both will be wiped out of

business


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The Natural Spa

A person discovered a natural spa on their farmand started charging one hundred bob to peopleinterested in bathing in the spa. Business wasbrisk for some time until his bitter rival and

neighbour also discovered a similar spa andadvertised it at eighty shillings. Angry, theoriginal spa started charging sixty shillings. Thenew spa went down to forty; the original wentdown to twenty. Finally the new spa in the spintof nothing invested, nothing lost declared

entry to his spa FREE!


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Dealing with Competition in an

Oligopolistic Model

1) Quality of product, the core, the actualand the augmented.

2) Place, promotion variables

3) Innovation. Creating new products

4) Diversification


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PERFECT COMPETITION

Monopolies and oligopolies in theabsence of undue interventionshould gradually slide into perfect

competition


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PRE-REQUISITES FOR PERFECT

COMPETITION

ATOMICITY- many small players whose actions have no significant impacton the market. Market chooses the price.

HOMOGENITY- all forms sell an identical or perfectly substitute product.

PERFECT & COMPLETE information- you know everything the other firmsdo.

EQUAL ACCESS- to supplies, finance, technology etc

FREE ENTRY- no barriers to entry

NO CARTELS or collusion- each business unit acts independently.

Consumers aim to maximize utility while sellers aim to maximizeprofit


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PROFITABILITY.

In perfect competition, any abnormalprofits can not be sustained.

Prices gradually drop to a equilibrium

point within a given time and geographicalarea.

There is a high level of movement within

companies folding up and new ones tryingto come in. Those who are able to surviveusually become Hardened


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DEALING WITH COMPETITION IN

A PC MODEL. Augmented product Customer service, post

sales follow up. Location Ideal? Rent vs returns? Opening, closing hours Product variety Backward, forward integration Above the line promotion

Below the line promotionThe ability to do a lot of promotion is usuallylimited to the fact that margins are not veryhigh.

fw market place competition 2

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