Introduction
Business environment has become highly competitive over the last couple of decades. Many organizations have come up in various industries, and each of the firms is aiming at making as high profits as possible, thus organizations are competing for customers. Various strategies are applied by organizations in their bid to win more customers over their rivals. For instance, market structure is one of the strategies that are applied in this bid. This strategy is applied by organizations that produce goods or services that are homogeneous in nature.
In other words, these are the organizations in an industry whereby they deal with similar goods or services. There are a number of market structures that an organization can adopt. However, the major market structures are four. They include perfect competition, oligopoly, monopoly, and monopolistic competition (Colander, 2010). This article will focus on the market structure applied by Toyota Motor Company Limited, which is in the automobile industry. Its market structure will be compared with other structures and recommendations relating to the company’s structure will be given.
Toyota Motor Company Limited’s Market Structure
Toyota is a Japan-based organization that is in the automotive industry. It is a global organization with operations all over the globe (Colander, 2010). Automobile industry is one of the most competitive industries, with a number of companies competing to get the best share of the market. As a result, innovation has become a necessity for companies that are willing to succeed in this industry. Some of the most dominant companies in this industry include General Motor Corporation, Audi, BMW, Hyundai, Honda, Ford, Isuzu, and Chrysler. The market structure strategy applied by the Toyota Motor Company Limited is oligopoly. This is a market structure whereby the market is controlled by a few organizations within the industry. The term “few”, in this case, does not imply a similar number of organizations since it depends on the size of the industry. For instance, a certain number of organizations in a given industry may be few, while the same number will be many in another industry.
These are organizations that are strong financially and have the ability to collude and control prices for their own benefit. However, it is not easy for such firms to collude since some of them are likely to cheat due to the incentives they are likely to get if they do so. As a result, organizations in an oligopoly market structure end up becoming competitive rivals (Colander, 2010). Each of them is keen on what the other one is doing to come up with a strategy to counter the same to maintain its competitive advantage, as well as attract more customers. It is important to note that the organizations in an oligopoly market are usually aware that any of their actions will cause a response reaction from the rest of their competitors.
These firms usually depend on each other in that whatever action one firm takes. No firm that operates in an oligopoly market structure has a chance to relax. They keep on improving their products and services. Oligopoly benefits the customers since organizations produce high quality products in a bid to win the competition over their rivals. They also sell these products at relatively low prices since they want to win more customers. On the other hand, such organizations end up making relatively low profits since they sell at low prices and spend more on production. There is also high level of differentiation in such organizations as they try to win customers by satisfying their specific needs.
Comparing Oligopoly Market Structure with Other Structures
Oligopoly market structure contrasts sharply with the other structures. For instance, all firms are viewed as small in a perfect competition market structure unlike in the oligopoly where a few large firms dominate the market. In a perfect competition structure, it is the small firms that produce goods and services at the lowest possible cost that compete against each other. The competition in such a structure is not very high since the level of innovation is also low. Organizations do not have enough money to invest in innovation and other competitive strategies (Sutton, 2001).
The level of output is usually socially optimal. An important point to note is that organizations are not interdependent in a perfect competition as it is the case in an oligopoly market structure. The actions of one organization do not cause a reaction from another organization. Organizations only react towards the market in that they respond to the situations in the market at any given time. The effect of such a structure to the consumers is that they do not get relatively high quality products compared to the products they get from oligopoly organizations. The prices are also relatively lower. Differentiation is not common in a perfect competition structure as it is in an oligopoly structure.
In a monopolistic competition structure, an industry has many firms that compete against each other in the same market. The products by organizations in a monopolistic competition structure are usually similar, but they have slight differences. There is a wide variety of products from such organizations, which is an advantage to the consumers (Etro, 2009). It is important to note that organizations in a monopolistic competition structure cannot collude to control the market due to the slight differences in their products. This is contrary to the case in oligopoly organizations. An example of an industry that has a monopolistic competition is foods production industry.
Hotels and restaurants might produce similar foods, but they have slight differences. The prices for products are relatively high as opposed to the case in oligopoly organizations. This is due to the slight differences in the products. Differentiation is also possible in this structure. Organizations can produce goods and services that are suitable to their various customers. Profitability is high in this structure (Sutton, 2001). Another point to note is that organizations in the monopolistic competition respond to their market demands as opposed to oligopoly organizations that respond to the actions of their competitors. Therefore, such organizations can afford to relax as long as the demand in the market is not intense.
The other major market structure is monopoly. This is a structure whereby there is only one player in the market. The organization is the only one that produces the products or services in such a structure. This means that there is no competition. In this regard, the organization ends up dominating the market. The firm can dictate prices of products to maximize its profits. It is easy for such organizations to produce low quality goods and sell them at a high price since customers do not have an alternative. In most cases, monopoly organizations are state owned (Etro, 2009). A good example of a state owned monopoly organization is the Indian Railway Company. There is no other organization in the country that offers railway services. Monopoly contrasts sharply with oligopoly in that there is only one player, while in oligopoly there is more than one player. There is no competition in monopoly, while the level of competition is high in oligopoly.
Recommendation
Toyota operates in an oligopoly market structure where the level of competition is high. It is not possible for Toyota to become a monopoly since there are other players already in the market. In an oligopoly market structure, profitability is not very high due to the high level of competition. In evaluating the other strategies that it can adopt to improve its profitability, Toyota is limited in options since it might also not be possible for it to adopt the perfect competition structure since it is already a big company. Perfect competition structure involves small organizations. Therefore, the only option that Toyota might have is the monopolistic competition structure where it can implement slight differences in its products and increase the prices. This means that the company will be producing differentiated products. Despite the fact that this might increase the cost of production, it is possible to recover the cost from sales and still make high profits compared to the situation in oligopoly structure.
Conclusion
Organizations are obliged to evaluate various market structures in order to come up with the market that will help them maximize their profits if they wish to survive the increasing level of competition in the business environment today. The options may be determined by the industry in which the organization operates. In the case of Toyota, the options are limited to monopolistic competition and oligopoly market structures. The company is, therefore, supposed to evaluate the two and decide the market that maximizes its profits.
References
Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill.
Etro, F. (2009). Endogenous market structures and the macroeconomy. Dordrecht: Springer.
Sutton, J. (2001). Technology and market structure: Theory and history. Cambridge, MA.: MIT Press.