Differentiating between market structures
Defining Samsung Group smart phone Industry and Market Structure
The Samsung group is one of the major players in the smartphone industry that comprises of Nokia, HTC, Sony Ericsson, Blackberry, Motorola and LG. One of the main characteristics of an oligopolistic market are the few number of sellers in the industry and a large number of buyers. Therefore, Samsung Group is in an oligopolistic market structure because a small number of vendors that have sizeable market shares characterize the smartphone industry.
Lee and Andrews (2008) state that an oligopolistic market structure is different from the other market structures in that there are only a small group of sellers while in a monopoly there is only one seller and in perfect competition and monopolistic competition, there are scores of dealers. Also, in oligopoly there is a mutual interdependence between the sellers because the decision of each of the competitors are influenced by each other’s verdicts, meaning that they cannot make independent judgments. In perfect competition and monopoly the firms do not take into considerations the decisions or reactions of the other companies, therefore, they make independent decisions (Lee &Andrews 2008).
The level of competition Samsung Group will face in each of the market structures.
Perfect competition market structure.
In perfect competition market, there are a large number of buyers and sellers all engaged in the purchase and selling identical or homogeneous products and have knowledge of the market prices and quantities plus there are no discriminations but have a perfect mobility of resources. The buyers are alike in terms of preferences between Samsung and its rivals, therefore, the firm experiences a perfect competition. Neither the customers nor the firm can influence the market prices by increasing or decreasing their purchases of the smartphones or output respectively. In this market, Samsung Group is a price taker. The level of competition is high.
In this market structure, fewer sellers dominate the market and influences the prices of each other’s commodities. Samsung’s pricing decision will be dependent on its rival’s decisions, for example, Nokia, Motorola, Sony Ericsson, and LG. Therefore, there is no competition. Price rigidity exists because the firm may not be able to change the prices of its products. In case the corporation decides to lower its price the competitors may reduce their prices, a scenario that will end hurting the Samsung’s Group profits.
In this type of market, Samsung Group will be the only producer and seller of the smartphones therefore the firm will have control of the smartphone market. The demand, supply and prices of the smartphones will be under the supervision of Samsung Group. Also, the corporation will be independent of any cost changes of products of other firms. No competition exists as the enterprise will be dominating the whole smartphone industry.
A large number of buyers and sellers characterize the structure sellers and has a differentiated product of each seller from the other commodities. Therefore, Samsung group will have a monopoly of its product but will be subject to competitive pressures from its competitor’s substitutes. The buyers will easily differentiate Samsung Group smartphones from its competitors’ substitute products. There is a substantive level of competition as the firm cannot enjoy full control of prices because of its rival’s products that are close substitutes for the corporation’s products.
Competitive strategies for maximizing profits in the long-run
Product differentiation strategy
The term refers to the process of differentiating a product or service from an organization competitor’s products to make it more attractive to a particular market segment (Corona& Nan, 2010). A firm in an oligopolistic market can gain market power and dominate at least part of the industry through a successive differentiation of its products. By gaining a larger market share than its competitors, the company will maximize its long run profits due to a large customer base. Corona and Nan (2010) state that successful strategy enables the firm’s product competition to shift from harmful price competition to competing on non- price factors.
A successful product differentiation strategy increases the Samsung’s smartphones attractiveness. No more demand prevails that may increase the supply and profit in the long run. Moreover, no government legislations apply on product differentiation.
Third-degree Price Discrimination strategy
Price discrimination is a microeconomic pricing strategy where a firm charges different prices to different groups of customers for the same products (Lee & Andrews, 2008). The term increases a company’s revenue and profits. The discrimination depends on the variation in consumers’ willingness to pay and the elasticity of demand as well as its purpose to get the markets consumer surplus.
Third-degree price discrimination refers to selling the same goods or services at different prices to the different market segments. Corona and Nan (2010) argue that the corporation may implement the strategy by dividing the markets on the basis of geographical, psychological, demographic and behavioral and fix different prices for each segment to increase a firm long run profits. Government regulations exist restricting pricing discrimination that has anticompetitive implications.
In an oligopolistic market, the sellers may decide to collude instead of competing (Corona& Nan, 2010). The firms collude to raise the price of the products. Under certain circumstances, the Samsung group may collude with rivals to avoid price competition and increase profits in the long run. After colluding the firms agree to raise the price and restrict output to raise revenue in the industry. The strategy, however, may attract new entrants unless there are strict barriers to entry into the market. In some countries like UK collusion is illegal while in others if it is perceived as a way of hindering competition and therefore considered as legal.
Among the three strategies, I would recommend Samsung Group to implement the product differentiation strategy because the approach relates to distinguishing products from those of the competitors thereby attracting more customers resulting in increasing market share. Furthermore, the method does not violate ethical principles and is aligned with the company’s value of continuous creativity and innovation as well as continuous development, integrity and transparency. The firm should take caution when implementing the price discrimination and collusion strategies as the strategies may violate the organization policies, ethical standards and government regulations.
Corona, C., & Nan, L. (2010). Preannouncing Competitive Decisions in Oligopoly Markets. SSRN Electronic Journal. doi:10.2139/ssrn.2226796. N.p.
Lee, & Philip Andrews (2008) .Theory of competitive oligopoly. Post Keynesian Price Theory, 100-116. doi:10.1017/cbo9780511492471.006. N.p.
Von Stackelberg, H. (2011). Chapter 2 General Analysis of Typical Market Structures. Market Structure and Equilibrium, 11-26. Doi: 10.1007/978-3-642-12586-7_2. N.p.