Market Structure

Topics: Perfect competition, Supply and demand, Hamburger Pages: 5 (1523 words) Published: June 23, 2013
If you are hungry and need a quick meal to go before heading to work or school in the morning, going to a fast-food restaurant is the way to go. Many people do not have the time in their tight and busy schedules to prepare or cook food at their homes, so they drive to the nearest fast-food restaurant of their choice. Time and speed are two critical factors that the fast-food industry uses to market itself. Workers and employees of this type of industry have to work extremely quick in order to serve and prepare food for hungry customers. Examples of the largest international competitors of the fast-food industry are McDonald’s, Wendy’s, Burger King, Kentucky-Fried Chicken, and Sonic. These restaurants top the list because of their rapid growth throughout several countries around the world. Out of the top five restaurants, one well-known organization called McDonald’s tops the chart. McDonald’s market structure was decided upon for several reasons, and it differentiates from the other alternatives. McDonald’s uses three or more competitive strategies to maximize its profits over the long run. To further maximize McDonald’s profits, there are a few recommendations I would like to make in relationship to its strategies. Fast Food Industry: Perfect Competition Market Structure

Perfect competition is the market structure that firms in the fast-food industry in general fall under. In a perfect competition, firms consist of a large number of buyers and sellers, an easy entry and exit from the market, homogenous products, and price takers. Having no control over the product’s price, a price taker is a buyer or seller that possess minimum market power and must “take” or accept the ongoing price. Based on the price determined in the market, a perfect competition sets a production level. Market supply and demand conditions as well as the competition within the industry set the price of the goods sold. This causes a perfectly competitive firm to face a perfectly elastic demand curve which is a horizontal line. With over 200,000 restaurants worldwide, fast food restaurants are categorized as the largest sectors of the food industry grossing over $100 billion in sales. McDonald’s as an Oligopoly: Differentiating Market Structures

A well-known organization, McDonald’s, has been feeding Big Macs and Happy Meals (goods or services produced) to hungry customers since the mid 50s and is currently today the number one hot spot for adults to allow their children to play and have fun. According to a website called “Libbyaanoosterr,” McDonald’s operates under an oligopoly market structure, which is a type of firm consisting of a small number of large independent sellers. Changes in prices, quantities, and qualities are known to be reacted from other firms. A few firms under the McDonalds organization can dominate by setting their own prices. It is differentiated from a monopoly (a market with one seller without a close substitute for its product) since there is neither a unique product (hamburgers) that is particular nor a single seller (McDonald's-An Oligopoly, 2013). It is also differs from a monopolistic competition (imperfect competition) because originally McDonald’s is a component of the food industry, which is a perfect competition. Due to the constant rise and fall of the economy on a daily basis, McDonald’s firms can decide whether to higher or lower the prices of their products, primarily hamburgers, in order to maximize annual revenue. The market structure was decided upon one story quote, which is from the McDonald’s website, “Can you imagine a world without the Big Mac? Or Chicken McNuggets? Or Happy Meals? Luckily, back in 1954, a man named Ray Kroc discovered a small burger restaurant in California, and wrote the first page of our history. From that humble start as a small restaurant, we are proud to have become one of the world’s leading food service retailers, with more than 33,000 restaurants (number of organizations)...

References: Berra, D. Y. (2012). How is McDonald’s considered a oligopoly? McDonald 's , 1.
McDonald 's-An Oligopoly. (2013, March 22). Retrieved from Libbyaanoosterr: http://libbyaanoosterr.wikispaces.com/McDonald%27s+-+An+Oligopoly
McDonald 's-Our Story. (2013, March 22). Retrieved March 22, 2013, from McDonald 's: http://www.mcdonalds.com/us/en/our_story.html
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