A market is said to function depending on the number, size and the power which is held by producers/firms which are operating in that particular market.
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Products are bought and sold differently in the market and they are bought and sold under different conditions. These prevailing conditions that products are bought and sold determine the market structure in which a particular firm is to operate. There are four market structures namely; perfect competition, monopoly, monopolistic competition and oligopoly each with its distinct characteristics.
Founded in 1962, Walmart is a major grocery retailer in the United States of America with its headquarters in Arkansas (Fishman, 2006). The company’s sales account to billions of shillings, for instance, in 2009, the compared recorded sales of $258 US Dollars. The company’s stores are in 55 different countries with the leading ones being in the US. The company also operates Mexico, UK, Brazil and Canada among others under different names. The company had to exit markets like Germany because it did not do well.
When Walmart is judged from a bird’s eye view, it has the characteristics of an oligopoly. One of the reasons as to why Walmart may be referred to having an oligopoly market structure is because it is operating in an industry where there are other few competing firms which are offering the same products that Walmart is offering. These major competitors are Kmart and Target (Zhu, Singh, & Manuszak, 2009) which have tried to cut a niche in the market.
When discussing oligopoly market structure, the emphasis is not entirely on the market structure but also on the way the firm will relate with other firms in the industry. When we look at Walmart as an oligopoly, does it anticipate the reaction of its competitors before the firm makes major decisions owing to the fact that it is the largest grocery retail stores in the US? One of the major characteristic of an oligopoly market structure is that there has to be interdependence among firms (Zhu, Singh, & Manuszak, 2009).
Organizations in oligopolistic markets also at times will agree to work together in order for them to benefit jointly. Another distinguishing feature of firms in oligopolistic markets is that there exists price rigidity because changes in the price of the commodities of one firm/organization may lead to price wars among the other firms in the industry (Fishman, 2006).
Therefore oligopolistic market organizations are price rigid which is not the case with Walmart for it gains its competitive advantage over other firms in the industry through lowering its prices and therefore driving up the sales of its commodities. This introduces the concept that Walmart is a monopoly in the industry, operating in an oligopolistic market structure.
Walmart leads in terms of grocery retail in the US and competitors do not offer stiff competition and the reason why the organization has been able to offer low prices for its products despite the existence of other competing firms in the same industry (Zhu, Singh, & Manuszak, 2009). Walmart is never largely affected by the pricing strategies of its competitors but instead its competitors are the ones who have to adapt their prices to match the prices of Walmart.
The size of Walmart in comparison to its competitors gives Walmart the characteristic of a monopoly. The organization has approximately 8500 stores. In 2009, the company ranked the greatest in terms of its revenue and therefore the large capital base makes the organization to enjoy internal economies of scales and therefore able to reduce its operational costs. This acts to the advantage of the organization through offering its customers low prices for its products and thus able to create customer loyalty.
Competitors, the examples of Target and Kmart are unable to produce and sell at the prevailing market conditions offered by Walmart giving Walmart dominance in determining the prices of the commodities (Zhu, Singh, & Manuszak, 2009). For other grocery retailers which are trying to come in to the market, are simply forced out of the way by the giant corporation making Walmart a monopoly in the grocery retail business.
Effectiveness of monopoly structure for Walmart is that the company is the ring leader in relation to setting the prices of grocery products. Competitors simply have to adjust their prices to the tune of Walmart prices for the competitors fear getting into wars over prices with Walmart (Fishman, 2006). Another advantage is that the corporation through its large capital base can afford to operate more and more retail stores to offer competition to competitors.
Where competitors cannot penetrate, Walmart can penetrate and thus Walmart organization is able to make the most of whatever demand exists in the market. Also Walmart, being a giant organization, has the advantage of being able to maintain prices to the level that it wants for the small sized corporation in the grocery industry are unable to compete with it.
From the above analysis, the organization (Walmart) has an oligopolistic market structure due to the existence of competitors which are trying to curve a niche in the market but its monopolistic market structure has outdone the oligopolistic nature of Walmart (Zhu, Singh, & Manuszak, 2009), therefore in presence of these competitors, Walmart is still a monopoly.
Fishman, C. (2006). The Wal-Mart Effect: How the World’s Most Powerful Company Really Works–and How It’s Transforming the American Economy.
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Zhu, T., Singh, V. & Manuszak, M. (2009). Market Structure and Competition in the Retail Discount Industry. Journal of Marketing Research (JMR)