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What is the market structure of this industry and why? You must analyze this real-world industry in relation to the characteristics of market structures to make this determination.
The characteristics of market structure that must be discussed are as follows:
How many competitors existed in this industry during this time period? Did it change during the time period?
What is the concentration ratio of this market? You should look at the beginning and the end of the time period. Concentration ratio as defined in economics is the market share of the largest 4 competitors added together. It is a key determinant of market structure and must be included.
What is the level of market power of your company of focus and the largest competitors? How does it change from the beginning of the time period to the end? Why?
What are the barrier to entry? Are these high barriers to entry or low barriers to entry? Why?
In part 1 you would have discussed whether the products were identical or differentiated. How does this impact brand loyalty of consumers?
Discuss any significant changes in any of these areas during the time period for analysis.
The market structure of this industry is an oligopoly, as there are only a few competitors and they have high levels of market power. At the beginning of the time period, there were five main competitors in the industry, and during the time period, one of them merged with another so that by the end of it there were four main competitors. The concentration ratio at the beginning was 85%, which dropped to 70% by the end due to some smaller firms entering.
The level of market power for each company changed from being very high at the start to slightly lower by then end due to increased competition from other firms entering; however, even at its lowest point it remained relatively high.
Barriers to entry for this industry are quite low as new companies can easily enter into production with minimal costs or effort involved. However, brand loyalty among consumers was still strong throughout most of the period due to many products having differentiated features and qualities that made them stand out from rivals’ offerings. Nonetheless, some degree of price competition still existed between competing firms since there were multiple players in this sector.