Business structure can be viewed as organizational and other attributes of a market. These are the characteristics which have a significant impact on competition and hence the pricing (Tuto2u 2011). The main aspects of the market structure includes the total number of the firms, the extent to which the industry is vertically integrated, the share of the market, costs, structure of buyers, turnover of customers and the product differentiation (degree of differentiation) (Tuto2u 2011).
The business structure has a significant impact on the business behaviour. There are certain behaviours which characterize each business structure. This is in turn determined by the aspects of a particular business structure.
There are several market structures under which any organization can fall. These include the perfect competition, monopoly or the oligopoly. Each of these has its unique characteristics. In the perfect competition, there are many firms in a certain industry. A good example of a competitive market is the hotel industry.
It is characterized by a large number of firms which compete with each other. In the perfect competition, there are very little barriers to entry. This implies that it is easy to venture into a certain industry. Every participant in the perfect competition is a price taker. This implies that every firm will take the price which is offered at the market. An individual firm in this case does not have any power to influence the market price.
Another category of the market structure is the monopoly. This is the business structure where there is only one firm in the market. There is a high barrier to entry into such a market. In this category of the market structure, the firm is the portico maker. This implies that the firm has the power to determine the price.
Therefore, there are high chances of customer exploitation in this market structure. This is because there is no competition for customers. This may also discourage the firms from innovation because the firm does not face any threat from competitors.
The other form of the market structure is the oligopoly. This form of market structure is characterized by few firms which produces differentiated products. There are high barriers to entry. This is the reason why there are a few firms in an industry. Firms in this form of market structure are the price makers because there are just a few firms in a certain industry.
From this discussion, it can clearly be seen that the market structure for the airline industry is oligopoly. This is because there are just a small number of companies in the industry.
However, there is a higher level of competition in this market structure compared with the monopoly where there is only one seller. In the airline industry, each company has the pricing power. This is because there are just a few firms in the industry. However, it is important to note that these firms do not have the power of setting the prices just to the levels they want.
In the airline industry, every organization affects the market. However, an organization is also affected by the decisions made by other organizations in the industry. The set up costs on the airline industry is extremely high.
Therefore, although there are high profits to be made, high costs forms a barrier to entry. For instance, setting an airline in the United States of America is extremely expensive. This is the reason why there are just a small number of companies operating in the market. This is unlike the case of a hotel which is easy to start up.
In airline industry as an oligopoly, there are sometimes price wars. This is where one company cuts its prices and others follow by doing the same. This process may usually continue and leads to unhealthy competition which may significantly affect the profitability of an organization.
For instance, the British Airways was faced by price wars in 2009 where it was forced to cut down the price of its tickets by 36 percent (Knapton 2008). This negatively affected its profitability. Airline companies usually engage in price wars with an effort of expanding their individual market shares.
Knapton, S. 2008. Price War As Airlines Fight For Passengers Web. Available at: https://www.telegraph.co.uk/travel/2605029/Price-war-as-airlines-fight-for-passengers.html
Tuto2u, 2011. Market Structures – Summary Web. Available at: https://www.tutor2u.net/economics/reference/key-summary-on-market-structures