Differentiating Between Market Structures
March 9, 2015
The concept of market structures and competitive strategies are important when attempting to compete in any market. Understanding what market structure your product falls under can help companies develop better competitive strategies and identify potential for loss and gains. The athletic footwear industry in the United States is highly profitable and continuously growing. In this paper I will identify market structure of the athletic footwear industry, the major retailers, and competitive strategies that can be used to maximize profits. History
The Athletic shoe industry had its start in 1892 when U.S Rubber company invented Keds and by 1917 they were being mass produced. Over the years the athletic shoe industry in the United States has evolved from crude shoes with rubber soles to a multibillion dollar industry promoted by Athletes, celebrities, and many other organizations. Athletic shoes commonly referred to as sneakers are no longer just worn during athletic activities. Sneakers have become fashion statements with countless designs and colors. Sneakers are now collectors’ items that cause thousands of Americans to patiently wait in line for their favorite sneaker to arrive. In 1984 Michael Jordan signed a contract with Nike to wear Air Jordans. Even after years of retirement, Air Jordans are still the most famous sneakers ever made. This was a turning point for Nike which until this day holds the largest percentage of the athletic shoe market in the United States. Market Structure
Perfect competition describes several small firms competing with one another, many products, many buyers and sellers, and many substitutes. Prices are determined by supply and demand and the producer has no leverage. In a monopoly there is only one producer or seller for a product. Competition to monopolies may be limited to high prices or copyrights. In the oligopoly market structure only a few firms make up the industry and have control of the overall price. Monopolistic competition is an imperfect competition where there are many producers and consumers. The products in this scenario are not perfect substitutes and are differentiated by branding. (Non-price competition). Market Structure For Nike
The athletic shoe industry in the United States falls under the oligopoly market structure. In the oligopoly market structure only a few firms make up the industry and have control of the overall price and the reactions of the dominating companies are interrelated. As of 2014 the total size of the athletic shoe industry in the United States was 53.7 billion dollars with Nike contributing 82.8% of the sales. Nike has the largest market share at 47.1% followed by Adidas at 35.6%, Under Armour at 3.4% , Wolverine World Wide at 3.1% and Deckers at 2.6%. Together these companies account for 91.8% of the athletic shoe industry in the United States. Effectively this falls under the oligopoly category of a very few sellers dominate the industry. Due to the low cost of raw material the athletic shoe industry has a high gross margin of about 45%.. Working With Other Market Structures
Nike may work in conjunction with other industries that have a different market structure. For example as stated before Nike, Adidas, and Under Armor fall under the oligopoly market structure. Nike has monopolized contracts with several professional athletes. In return the popularity of these athletes allows Nike to profit and remain the only company that produces certain sneakers such as the Air-Jordan. The Nike brand already exist within a monopolistic market. Currently consumers can walk into any store and have hundreds of brands of sneakers to choose from. Nike relies on its brand’s name to continue selling more than other companies. Since Nike has become so well-known and sponsored it’s sells are not altered by similar products....
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