Market Structure and Competition

Market Structure

A market structure is the interconnected characters of a market that can be subjected to the number of identical products in the same category. This can be defined by four different criteria like number of firms, their sizes, amount of product differentiation and the ease of entry and exit.

Any market has a market leader who owns the maximum share, and a market nichers owning the minimum. The market challenger and the market followers come in between. All of them together form a hypothetical market structure.

COMPETITION

Any market structure consists of four basic entities

·         Perfect competition: Perfect competition is when many small firms compete against each other. The firms produce a remarkable output level at minimum costs to survive the market.

·          Monopoly: A monopoly has no competition at all. Thus the output drive is minimised and the profits are increased.

·         Oligopoly: An oligopoly is when only a very few firms are there is the market. The costs of the products are increased or decreased in all the firms together, or in other words, when one firm decides to lower the costs, all the firms do so.

·          Monopolistic competition: In monopolistic competition many industry compete but with different product category.

PORTERS FIVE FORCE MODEL- Analysing competition

Threat of new entrant

Any kind of competition caused by a new entrant to the industry is put into this category.

Since the market is growing 30% annually, the new entrants consider this as a profitable venture. A new brand will give the same values to the customers but it a lower price (Balaji’s strategy). This can be seen as a threat. The threat of new entrant for Bingo is relatively moderate.

Industry attractiveness

The factors like competition, competitor’s marketing strategy, pricing strategy etc constitute to the industry attractiveness of a market.

High competition, low difference in quality and the customers easily switching brands are the common threats in this industry. Thus the threat of industry attractiveness is high.

Bargaining power of suppliers

The power of suppliers as a stake holder in a company is very high.

The suppliers are the people who provide raw materials like potato, spices, packaging etc. If any one of this industry is increasing their price or shortage the inputs, it affects the entire industry. ITC is an e-Chou pal venture and it permits steady supply of raw materials at stable prices. Thus the threat from the suppliers is low

Bargaining power of customers

Any product is made so that a customer purchases the product. The customer has a variety of brands to choose their product from and thus have the power to bargain (except in monopoly market).

Price sensitivity is high in this market. If one of the player decides to lower the price, the entire market lowers their price, else their product won’t sell. Brand loyalty is low in this market. Thus the threat of the customers’ bargaining power is high.

There is one more additional threat to a market other than the ones mentioned above,

Threat of substitutes

Substitutes are brands that are of a different product category, but still is able to replace the desired brand.

The competition for the market doesn’t occur only from the brands of the same industry, it also arises from the substitute products. The substitute of Bingo might be Marie biscuits, nachos, chakli, banana chips etc.