Differentiating Between Market Structur

Differentiating Between Market Structures
Anisa P. Khan
ECO/365
September 15th, 2014
Janet Hunter

Introduction In order to understand the difference between market structures, it is vital to comprehend how supply and demand are affected by public and private goods, common resources, and monopolies. There are a variety of organizations that show market structure, which directly and indirectly affect labor supply and demand. There are different classifications of markets and the structure of a business determines which classification it will fall into. Markets are divided according to the composition of the business and what it provides to the specific market. Business composition is determined by the structure of market characteristics, and this helps determine level and area of competition. The characteristics in a market with the most concentration focus on number of purchasers and retailers, level in which a product has a substitute, price, entry and the level of mutual dependence. (Colander, 2010). Microsoft Corp has been around for more than 30 years now and still continues to have high profit margins in software segment. As the company is maturing, its growth has slowed down as compared to initial stages, but the power the computer software maker has over the flow of the world 's information is very formidable. On the other side we have Google Inc., a company just a decade old but with power that rivals Microsoft in many ways. In a sense, Microsoft provides the river, and Google provides the current.

Microsoft is the software giant responsible for bringing Windows to the PC. Microsoft is also a known and respected company in a global market. The tech giant has dominated the computer industry since its start in 1981. Due to the nature of such a huge company, Microsoft has its hands in multiple markets. Microsoft currently competes in file hosting, software, operating systems, and gaming consoles. Unfortunately, each one of the aforementioned markets differ from one another. For the purpose of this discussion, the market that is of concern is Microsoft’s evolvement in operating systems. Determining the market structure Microsoft competes in with regards to operating systems makes it much more manageable to implement competitive strategies to maximize profits.

At a quick glance at the competitors, Microsoft has an operating systems one might think Microsoft operates in a monopoly. However, this is untrue. In a true monopoly, there is one seller, no close substitutes, blocked entry, and one firm that controls price. A monopoly is said to be coercive when the monopoly actively prohibits competitors by using practices (such as underselling) that derive from its market or political influence. There is often debate of whether market restrictions are in the best long-term interest of present and future consumers. Microsoft currently competes with multiple companies like Apple, Google, Linux, Unix, and Sun Microsystems. If companies like Apple or Linux were not around then Microsoft would be a pure monopoly and since there is large barriers of entry to the software operating system markets then we would be hard pressed to see any new companies emerge. Even though the market share of these companies is rather small if even noticeable, Microsoft would not fit into a monopoly category. In a recent study on market share of operating systems, Microsoft currently holds 91.62% of the desktop operating system market. Because of this Microsoft competes in an oligopoly market.

In an Oligopoly, there are minimal buyers. The small number of sellers residing in large companies can determine this market. The characteristic of this market structure consists of many buyers yet they have very few sellers, large firms in comparison to the market size, characterized and alike products, and strict entry barriers. Having a small number of larger firms helps with market control relying on the size of the firms. The characterized goods and services are usually directed toward numerous consumers. The goods and services alike that are produce are raw materials carried on by other companies as inputs.

Prices with oligopolies are generally kept constant. They believe that price changes are not positive for companies. With the cost above marginal level, the more sold at the going rate will raise profits. To lower prices production must raise, this also lower profit per unit. Oligopolies include barriers of entry just like monopolies. Even though the market share of Microsoft’s biggest competitor is only a percent or two, it sets Microsoft away from the monopoly classification. One of the competitive strategies that would serve Microsoft well increasing sales of Windows would be lowering the cost of the software. By lowering the cost of the Windows software Microsoft could reach a much larger target audience with its products. Microsoft currently sells windows at roughly $200 for the pro version. Microsoft biggest competitor Apple currently sells its operating system for roughly $20. The price difference here is huge, and if Microsoft can even get close to the $100 mark, they would see an increase in market share. Another competitive strategy that Microsoft can use to increase profitability would be increasing their target audience. Since the inception of Windows, Microsoft made a bold play to put Windows in the workplace and let Apple have the schools. The idea behind this strategy was that if adults were used to using Windows at work, they would buy Windows based PC’s for their homes. This worked flawlessly through the early years of the Windows operating system. However, this strategy may need to be addressed and Microsoft needs to take an approach similar to Apple. Apple began its campaign with donating Apple computers to schools in hopes of gaining familiarity with students and earning their long-term business. A recent study proposed that Apple’s idea worked well “A new survey of technology directors in U.S. school districts found that all of them are testing or deploying the iPad in schools, and they expect tablets to outnumber computers in the next five years” (Hughes, 2011). It is not too late for Microsoft to develop a similar strategy with its Microsoft Windows tablet addition. The last competitive strategy that Microsoft can use to increase profits would be the introduction of a differentiation strategy. A differentiation strategy would include Microsoft selling Windows in multiple platforms or levels. Windows currently comes in three tiers home, professional, and ultimate. Microsoft can increase sales by adding another tier of business. By doing so Microsoft would be able to lower the home tier down in price and offer businesses two different tiers of the platform. This approach would lower the cost for individuals who buy the home version and allow for more upgrades to the newer software without the current expense. The two different tiers of business and professional should both include the ability for a company to connect their new Windows based computers to the network. While home should still be without this functionality. By providing businesses with another version of Windows, Microsoft would greatly increase the upgrade rate of Windows in the business world. Companies categorized as oligopoly often controls fewer resources. They also create several barriers to entry by using market expertise, pricey technology and brand equity. These companies are competing on thin margins. Product differentiation is extremely challenging and substitutes are readily available. This opens up for cartels and price setting. The major players in each market will decide on a set price where everyone that is involved will financially benefit. Unfortunately these companies can lose share fast if indeed the prices increase. Due to this it is much better to just settle on a price and run with that. When companies have very little, if any control over it, most companies will be forced to start cutting costs to be sure they maximize their profits.

Conclusion

Microsoft has set the trend of succeeding as the first mover in different areas like Operating system, Office suit, Internet Browser and Java. Competing in an oligopoly market can be hard at times. When you are a tech giant such as Microsoft, you must always look for new ways to increase revenue. Doing this involves reviewing new competitive strategies and solidifying the strategies that are currently in place. Microsoft will continue to be a leader in the computer industry and the operating systems market. Microsoft will continue to grow and utilize new strategies to ensure its competitive lead on the competition.

References differentiation strategy. (n.d.). Retrieved from Business Dictionary: http://www.businessdictionary.com/definition/differentiation-strategy.html
Hughes, N. (2011). Schools expect to have more iPads than computers in next 5 years. AppleInsider, 1. oligopoly. (n.d.). Retrieved from Merriam-Webster: http://www.merriam-webster.com/dictionary/oligopoly
NetMarketShare. (n.d.). Retrieved from http://www.netmarketshare.com/operating-system-market-share.aspx?qprid=10&qpcustomd=0
Colander, D. C. (2013). Microeconomics (9th ed.). Retrieved from The University of Phoenix eBook Collection database.

References: differentiation strategy. (n.d.). Retrieved from Business Dictionary: http://www.businessdictionary.com/definition/differentiation-strategy.html Hughes, N. (2011). Schools expect to have more iPads than computers in next 5 years. AppleInsider, 1. oligopoly. (n.d.). Retrieved from Merriam-Webster: http://www.merriam-webster.com/dictionary/oligopoly NetMarketShare. (n.d.). Retrieved from http://www.netmarketshare.com/operating-system-market-share.aspx?qprid=10&qpcustomd=0 Colander, D. C. (2013). Microeconomics (9th ed.). Retrieved from The University of Phoenix eBook Collection database.