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Analyzing Bangladesh Scenario, Identify (Rice, Poultry, Soap, Garments, Mobile Phone) belongs to Which Market Structure and Why?
Dr. Pinky Shah
Associate Professor University of Liberal Arts, Bangladesh Dhaka
A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Markets vary in size, range, geographic scale, location, types and variety of human communities, as well as the types of goods and services traded. Some examples include local farmers’ markets held in town squares or parking lots, shopping centers and shopping malls, international currency and commodity markets, legally created markets such as for pollution permits, and illegal markets such as the market for illicit drugs. In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influence its price. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society So it is an event or occasion, usually held at regular intervals, at which people meet for the purpose of buying and selling merchandise. Means by which buyers and sellers are brought into contact with each other and goods and services are exchanged. The term originally referred to a place where products were bought and sold; today a market is any arena, however abstract or far-reaching, in which buyers and sellers make transactions.
In economics, market structure (also known as market form) describes the state of a market with respect to competition.
Definitions and Features of Different Market Structure
Perfectly Competitive Market:
Perfectly competitive market describes a market in which there are many small firms, all producing homogeneous goods. In general a perfectly competitive market is characterized by the fact that no single firm has influence over the price of the product it sells. Because the conditions for perfect competition are very strict, there are few perfectly competitive markets. Perfect competition, in which the market consists of a very large number of firms producing a homogeneous product. A perfectly competitive market may have several distinguishing characteristics, including: Infinite consumers with the willingness and ability to buy the product at a certain price, Infinite producers with the willingness and ability to supply the product at a certain price. It is relatively easy to enter or exit as a business in a perfectly competitive market. Prices and quality of products are assumed to be known to all consumers and producers. Buyers and sellers incur no costs in making an exchange. Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit. The characteristics of any given market good or service do not vary across suppliers. Some examples of Perfectly competitive market : currency markets, bond markets, Agriculture. Imperfect market falls in to three categories. They are briefly discussed bellowed. Financial markets – stock exchange,
Monopolistic competition is a common market structure where many competing producers sell products that are differentiated from one another (that is, the products are substitutes, but are not exactly alike, similar to brand loyalty).The "founding father" of the theory of monopolistic competition was Edward Hastings Chamberlin . Monopolistically competitive markets have the characteristics: There are many producers and many consumers in a given market, and no business has total control over the market price. Consumers perceive that there are non-price differences among the competitors' products. There are few barriers to entry and exit. Producers have a degree of control over price. A firm making profits in the short run will break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This gives the amount of influence over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.Monopolistic competition, also called competitive market, where there are a large number of independent firms which have a very small proportion of the market share.
Some examples of Monopolistic market: plumbers, etc.
restaurants, cereal, clothing, shoes, and service
industries in large cities, professions – solicitors, doctors, etc., building firms – plasterers,
In Economics, an oligopoly (from Ancient Greek oligoi which means "few" and polein which means "to sell") is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be a high risk for collusion. A oligopoly market may have several distinguishing characteristics, including: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs. Oligopolies are price setters rather than price takers. Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology and strategic actions by incumbent firms designed to discourage or destroy nascent firms. "Few" - a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms. Oligopolies can retain long run abnormal profits. Assumptions about perfect knowledge vary but the knowledge of various economic actors can be generally described as selective. Buyers have only imperfect knowledge as to price, cost and product quality. The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. Oligopoly, in which a market is dominated by a small number of firms which own more than 40% of the market share. Some examples of oligopoly market: Supermarkets, Banking industry, Chemicals, Oil, Medicinal drugs, broadcasting
In general sence Monopoly is the market, where there is only one provider of a product or service. In economics, a monopoly (from Greek monos which means “alone or single” and polein which means” to sell”) exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute
goods. The verb "monopolize" refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition. Some examples of Monopoly market: Microsoft (USA), salt commission (China), Major League Baseball (USA ) Pure monopoly: A government-granted monopoly (also called a "de jure monopoly") is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market monopolies. Natural monopoly: A monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. by law, regulation, or other mechanisms examples of of government enforcement. Copyright, patents and trademarks are government-granted
Determinants of Market Structures
Market Structure No. of Sellers Nature of Product Market Share of Sellers Control of the Seller over the Price Entry and Exit Examples
Perfectly Numero Competitiv us e Monopolis tic Oligopoly Large Few
Homogeneo Insignifica No us nt Control Differentiate Small d Differentiate Large d/ Homogeneo us Unique Hundred Percent Some Control May or May not
Restaurant s, movies
Depend Food oil, s on the SIM Card Market Restrict ed WASA, Microsoft
Market Structure of Lux Beauty Soap in Bangladesh
Unilever is a multinational consumer product manufacturing giant operating in over hundred countries all around the globe. Unilever Bangladesh is the Bangladesh chapter of Unilever, where the company holds 60.75% share whereas the Government of Peoples Republic of Bangladesh holds 39.25% share. Unilever’s one of the most popular bran d is LUX. They segment LUX’s market according to geographical location. It further differentiates these segments into Socio Economic Cluster (SEC) which takes into account the criteria of education and profession which ultimately measurer the financial ability of consumers. Unilever targets the urban and sub urban middle class and middle class segment of the population.
Overall History of Lux:
Lux soap was first launched in the UK in 1899 as a flaked version of Sunlight Soap. Subsequently it was launched in the US in 1916, and marketed as a laundry soap targeted specifically at 'delicates'. Lever Brothers encouraged women to home launder their clothes without fear of satins and silks being turned yellow by harsh lyes that were often used in soaps at the time. The result was a gentler soap that dissolved more readily and was advertised as suitable for home laundry use. Lux is currently a product of Unilever. The name "Lux" was chosen as the Latin word for "light" and because it was suggestive of "luxury." Lux toilet soap was introduced as bathroom soap in the US in 1925 and in the UK in 1928 as a brand extention of Lux soap flakes by Lever Brothers. Subsequently Lux soap has been marketed in several forms, including handwash, shower gel and cream bath soap.From the 1930s right through to the 1970s, Lux soap colours and packaging were altered several times to reflect fashion trends. In 1958 five colours made up the range: pink, white, blue, green and yellow. People enjoyed matching their soap with their bathroom colours. As of June 2009 Lux is sold in over 100 countries.
Lux in Bangladesh:
The origin dates back to 1964, when the first Manufacturing Operations were set up as a part of Lever Brothers Pakistan operations. After independence, it was incorporated as a separate Company under the laws of Bangladesh. Later on the Company diversified into different categories.The company’s manufacturing operations are based in Chittagong where they have
soap manufacturing unit and a state of the art Personal Product manufacturing plant offering people a chance to pamper them for a modest price.
Lux at the Present Time:
In the early 1990s, Lux responded to the growing trend away from traditional soap bars by launching its own range of shower gels, liquid soaps and moisturising bars. Lux beauty facial wash, Lux beauty bath and Lux beauty shower were launched in 1992. In 2004, the entire Lux range was relaunched in the UK to include five shower gels, three bath products and two new soap bars. 2005 saw the launch of three exciting new variants with dreamy names such as “Wine & Roses” bath cream, “Glowing Touch” and “Sparkling Morning” shower gels. Lux was initially a premium brand. Lux was being projected as an aspirational brand and the endorsements by stars further reinforced the positioning. The increasing competition in the soap category forced Lux to rethink on its targeting strategy. The brand had a choice either to compromise on market share and uphold the premium positioning or to retain the market share and dilute the positioning. Lux wanted to ensure that the brand be positioned as premium but also did not wanted to compromise on the share. Thus born International Lux which is the premium variant and the affordable segment was catered by Lux beauty soap. Earlier the brand used the positioning " Beauty soap of Film stars" . But as the customer evolved, the positioning lost its charm because customers began to doubt whether the film stars actually used this brand. Taking a cue from the customers, Lux changed the positioning appealing to the need for becoming a star. The new positioning is communicated with the tagline " Bring out the star in you".
Market Structure of Lux in Banhladesh:
Though LUX is produced in Bangladesh, Unilever maintains the same standard all around the globe. Since the demand for the beauty soap market is to a great extent oligopolistic, variations to price lead to a price war which can eventually break down company’s market share. So the price is affordable by most of the people. Unilever Bangladesh has outsourced its distribution channels to third party distributors which allow them distribute LUX in massive bulks amounting to around ten million pieces. It undertakes the largest promotional activities in the beauty soap industry.
Findings behind Oligopolistic Market Structure for Lux soap:
The beauty soap industry has a few major producers of which Unilever holds market share of slightly less than 50%. Other competing brands like Tibbet, Aromatic, Lifebuoy and Keya have started to have strong consumer base, but LUX’s product features distribution and promotional activities have created high brand loyalty for which it is still the market leader.
Market Share of Lux:
The beauty soap industry in Bangladesh consists of few major products. Unilever Bangladesh Ltd is operating in the industry with its world famous brand Lux. Out of these giant companies Unilever Bangladesh Ltd is the market leader with a share of around 43%. Figure 1- shows the market share of all the companies in the sector. Unilever Bangladesh Ltd is leading the market. The other competitors are very competitive are very competitive among themselves but they cannot put a intense competition with Unilever Bangladesh Ltd, as they have market share much less than Unilever Bangladesh Ltd.
Grounds behind LUX for which It supports Oligopoly
Small number of firms: in oligopoly there are just a few firms. There must be several firms dominating the industry so that they really able to set the price. In our country, this soap market has fewer industries which resembles with the oligopolistic feature.
Interdependence: when there are only a few large firms dominating, the industry, they cannot act independently of one another. Each firm will react to what the other firms do in terms of output and price, as well as to changes in quality and product differentiation. In our country we can see, the price of every soap bar including Lux is within a certain range and it is affordable by rural people also.
Barriers to entry: it is possible that certain barriers to entry have prevented more competition in oligopolistic industries. Barriers may include legal barriers, such as patents, control and ownership over critical supplies and so on. But there may be entry barriers of a less overwhelming kind which may result in the presence of some competitors but as many as would create a market structure of monopolistic competition. May be that is why there are few soap industries in our country.
Limit pricing: in oligopolistic market there is more than one competitor and they all share the goal of seeking to prevent yet more competitors appearing on the scene. The concept of limit pricing is just such a concept. It refers to the possibility that oligopolists jointly seek to agree on a price which is the highest they charge without prompting a new entrant to appear. The higher the barriers to entry are, then the higher is the possible level of the limit price.
Non-Price competition: by their very nature, oligopolistic firms do not usually exhibit active price competition. It is an attempt by one oligopolistic firm to attract customers by some means other than a price differential. Being a oligopolist competitor Lux followed some strategies as non-price competition strategy –
o Advertising: the primary purpose of advertising is to shift the demand curve to
the right. This allows the seller to sell more at each and every price. Advertising may also have the effect of differentiating the product and of making the product’s availability better known.
o Quality variation: there is competition to create new quality classes and thereby
gain a competitive edge. Being the first in the market in a new quality class has often meant higher profits. New product development ca promise higher sales and profits in a way that avoids the alternative risk of engaging in price competition with rivals.
o Branding: the use of brand names can be a powerful form of product
differentiation and highly effective in raising sales. The price premium which a brand can command may make the brand name a significant asset for the firm. Branding can be particularly important when new products are being developed.
Prior to 2003, although the brand enjoyed success and has sustained its leadership position but had been facing issues of stagnation. The stagnation is caused by the plethora of brands competing for the market share and the scope for differentiation had reduced to almost nil. But still Lux is prevailing leadership both in profit making and market share because of its marketing strategy. In Bangladesh, there are few stronger brands and they are doing business too. But we can see Lux is enjoying its winning for a long time because of its unique policy of advertising, branding, and product feature that keeps its consumers amazed always. So we can say Lux is a perfect example of Oligopoly market.
References: www.wikipedia.org www.unilever.com/ourbrands/personalcare/.lux.asp
www.unilever.com.bd Report on “Competition Scenerio in Bangladesh”. -Prepared by Bangladesh Enterprise Institute www.bized.com.uk
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