Introduction
The retail business is one of the most competitive in the world, with many companies competing for the leading spot. The goal of this paper is to examine the market structure of Walmart, one of the world’s largest retailers. Investigating Walmart’s market structure is critical for acquiring insights into this market. When examining Walmart’s market structure, it is possible to conclude that the corporation works in an oligopoly market structure. According to the findings, Walmart is one of the few dominating retail businesses, which has substantial consequences for both its short-term and long-term profits.
Types of Market Structures
Perfect Competition
To understand Walmart’s market structure, it is necessary to first distinguish between the four significant types of market structures. A perfect competition market structure is defined by an extensive number of small enterprises that manufacture the same commodity and lack market strength (Amacher & Pate, 2018). Firms are price-taking businesses in a perfectly competitive market, which means they have no control over the price of their goods. This phenomenon occurs because there are so many companies making the same commodity that no single company can influence market pricing.
Despite their lack of market power, companies in a perfect competition market must participate in promotional activities to distinguish their products from rivals. Additionally, to remain competitive, businesses must always attempt to cut their manufacturing costs. In summary, while perfect competition is a desirable competitive structure, enterprises may not always find it simple to prosper in such a market.
Monopolistic Competition
Monopolistic competition is a term given to the second form of market structure. This market structure is distinguished by a large number of small businesses providing items that are similar but different in some way from one another. (Amacher & Pate, 2018). This structure is opposed to ideal competition, in which businesses sell identical items.
Firms are able to distinguish their products under monopolistic competition by using branding, presentation, and marketing methods. (Amacher & Pate, 2018). Furthermore, since there are so many small businesses in the market, there is some rivalry, but not nearly enough to push costs down to the level of perfect competition. Nevertheless, the existence of competition drives businesses to continually strive for innovation and development in order to stay ahead of the curve of their competitors.
Oligopoly
Oligopoly is the third variation on a market structure that should be mentioned. A few significant enterprises dominate the market under this kind of organization, which frequently leads to more efficient manufacturing and lower consumer pricing (Amacher & Pate, 2018). However, it may result in less creative thinking and fierce rivalry (Amacher & Pate, 2018). Due to the high barriers to entry, specific industries are more inclined to have an oligopoly structure, while others are more likely to have a competitive structure. Firms must be purposeful in their pricing and promotional strategies in an oligopoly scenario to achieve a more significant market share and keep their place in the market.
Monopoly
Finally, the fourth form is a monopoly, which occurs when there is a single business in the market. Monopolies can form spontaneously, but they can also form as a result of purchases and mergers (Amacher & Pate, 2018). In some cases, the purchasing firm effectively buys out all of its rivals, leaving only one corporation in command of the market.
Monopolies may be harmful to customers since they may result in higher pricing and worse product quality owing to a lack of competition (Amacher & Pate, 2018). Furthermore, since they face little competition, monopolies frequently have little motivation to develop or enhance their products. As a result, governments often control monopolies in order to guarantee that they do not misuse their position and hurt consumers.
Walmart’s Position in the Oligopoly Market
Walmart operates under an oligopoly market framework based on the market types described above. Walmart functions in an oligopoly market structure since the retail business is dominated by a few major corporations, including Walmart. Target, Costco, and Amazon are among the other companies in the business (Meyersohn, 2018; Monteros, 2021). Firms have tremendous market power, which may affect pricing in this market system.
The retail industry’s significant obstacles to entry, such as substantial capital needs and economies of scale, make it particularly difficult for prospective competitors to contend with established enterprises such as Walmart. As a result, Walmart wields considerable market power and can affect the establishment of prices. Walmart’s market strength stems from its scale and operational efficiency, which allows it to offer cheaper pricing than competitors.
Challenges and Price Elasticity
Despite Walmart’s oligopoly market structure, the industry faces competitive challenges. One of the most significant challenges is the danger of emerging competitors. The retail business has substantial entry barriers, such as large financial requirements and economies of scale. However, new market participants continue to arrive, such as Amazon, which has revolutionized the sector with its online shopping platform (Monteros, 2021).
The high entry barriers to the retail business have severe consequences for Walmart’s profitability over the long run. Walmart can maintain its market strength with few new competitors, allowing it to charge greater prices than it might in a market with greater competition. However, in order to stay ahead of its competition, Walmart must spend money on research and development. Furthermore, in order to remain competitive in the ever-changing retail industry, Walmart needs to keep innovating and experimenting with new business models.
Walmart’s market structure has a relatively low price elasticity of demand, which means that shifts in price have little influence on the quantity demanded. This phenomenon is due to the fact that Walmart is recognized for selling things at meager rates, which has produced a customer sense that they are receiving a good bargain (John, 2019). However, this does not imply that Walmart may charge whatever rates it desires.
While Walmart may benefit from its low price elasticity in the marketplace by charging slightly higher prices than its rivals, it must be cautious not to set prices too high and potentially lose customers to competitors offering identical items at cheaper costs. Furthermore, Walmart could consider making investments in marketing initiatives and incentives to retain shoppers whom competitors’ cheaper costs may tempt. By doing so, Walmart can preserve its status as the market’s biggest retailer while raising earnings.
Conclusion
In conclusion, Walmart operates in an oligopolistic market structure, allowing it to maintain market dominance and charge higher prices than its opponents. However, the danger of emerging competitors and the necessity for ongoing R&D investment are concerns that Walmart must solve to preserve its profitability over the long term. Walmart must also be wary of charging too much and risk losing clients to the competition. Overall, Walmart’s market structure is complicated, and in order to remain successful in the retail business, it must continue to modify and evolve.
References
Amacher, R. C., & Pate, J. (2018). Principles of microeconomics (2nd ed.). Bridgepoint Education.
John, S. (2019). How Walmart keeps its prices so low. Business Insider. Web.
Meyersohn, N. (2018). How Costco thrives in the Amazon era. CNN. Web.
Monteros, M. (2021). How Amazon and Walmart’s head-to-head competition is changing retail. Retail Dive. Web.