Market Structure: Perfect, Imperfect, Monopoly, Oligopoly - Research Paper

Introduction

Market structure refers to the organizational of a market in combination with other market characteristics (Titus, 2018). Market characteristics influence the nature of competition and the pricing of commodities. There are four significant types of market structures which include perfect competition, imperfect competition, monopoly, and oligopoly. Oligopoly refers to a market structure where a small number of companies where none of the companies can keep others from having significant influence (Head & Spencer, 2017). There are several companies practicing oligopoly. This paper will analyze the Verizon wireless as a company that operates under the oligopoly market structure.

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Verizon wireless is one of the companies that operate in an oligopolistic market. Market structure defines the competitive settings in which an organization operates. The market characteristics play a significant role in the competitive tactics and strategies applied by a firm. There are several reasons as to why Verizon wireless can be regarded as an oligopoly. One is the first two companies control the more significant portion of the market (Grasset, 2015). They include Verizon wireless and AT&T. There are also smaller firms in the market, but their market stake is lower compared to the two leading companies. The other reason is that many barriers restrict firms from entering the industry. It can be attributed to the high level of investment needed to establish a firm in the broad market. The high operation cost restricts many firms from entering the industry.

Price Elasticity of Verizon Wireless

Verizon wireless operates under an elastic price. Price elasticity refers to the measure of how the cost of a commodity change with change in the quantity supplied or the demand for a product (Grasset, 2015). In the elastic markets, decreasing the price of commodity results in an increase in profits. In the inelastic market, increasing rates result in an improvement in profits. One of the reasons as to why the company has excellent price elasticity is due to consumer loyalty the firm enjoys. It enables them to raise their prices a little bit before loyal customers begin to buy less. The company has established a strong brand preference with its consumers. If Verizon wireless raises its rates, users will tend to buy less of their products instead of moving to other firms such as AT&T (Octotutor, 2014). The firm has, however, invested a lot of money to build that kind of goodwill.

On the other hand, if there is a reduction in the price of wireless connections, the demand for the product will be high. The market domination of Verizon wireless has enabled it to raise its rates even when its rivals cannot. It also allows the company to say no to giving discounts when competing firms are providing discounts to customers.

Ways Verizon Wireless Prices Its Products

Currently, the firm rates its products according to geographic segment and market. It implies that each sub-brand of Verizon wireless applies different strategies of pricing. The pricing strategy of Verizon wireless also relies on the prices set by close competitors such as TA&T. The costing approach of Verizon wireless is also influenced by the fact that it is America's most-used brand (Levy, 2016). Their distribution system also influences the pricing strategy. The firm uses an FMCG distribution system which has helped eliminate small and middle-level players. The firm uses the market price strategy for pricing (Levy, 2016). The reason behind this pricing strategy is so as it can meet the opposition it faces from other players such as TA&T. Its products are set around the same level set by rivals. Market price strategy implies that the price is not to be too high or too low from what competitors are charging.

Ways Verizon Wireless Can Increase Its Revenue and Profitability

There are several ways that Verizon wireless can raise its revenues and profits for it to remain competitive in the industry. One of the best strategies that the company can apply to gain more benefits and increase their revenue is by using promotional pricing. Promotional pricing is where a company offers promotional prices to its customers as regularly as probable (Verizon Communications, 2017). It is done by frequently reducing the cost of products below the standard selling price to create short-run deals. It is a strategy that Verizon wireless can use to attract more customers to its products. Promotional pricing can be done on occasions such as Christmas. The low pricing creates a sense of criticalness, which makes customers buy more of the product as the low prices attract them. Promotion can also be done for the company's marketing department. By doing this, the marketers are motivated to push the company's products into the market. It will result to more people buying the items, which will increase the company's revenue and profits.

Conclusion

Verizon wireless is a company that operates under an oligopoly market structure. The firm dominates the industry with its wide range of items. The company works under an elastic price whereby the reduction of its product prices results in more profit and revenue. The company, however, enjoys an excellent price elasticity whereby an increase in the cost of its items does not make it lose its loyal customers. It only makes the consumers use less of Verizon wireless products. The company can use the promotional pricing strategy to raise its revenues and profits.

References

Grasset, G. (2015). Price Elasticity of Demand - Illustrated for Commerce - Lokad. Retrieved 4 August 2019, from https://www.lokad.com/price-elasticity-of-demand-definition

Head, K., & Spencer, B. J. (2017). Oligopoly in international trade: Rise, fall, and resurgence. Canadian Journal of Economics/Revue Canadienne d'economique, 50(5), 1414-1444.

Levy, A. (2016). Verizon Is Showing Off Its Pricing Power -- The Motley Fool. Retrieved 4 August 2019, from https://www.fool.com/investing/2016/07/08/verizon-is-showing-off-its-pricing-power.aspx

Octotutor. (2014). Differentiating Market Structures: Verizon Wireless Oligopoly | Octotutor. Retrieved 4 August 2019, from https://octotutor.com/differentiating-market-structures-verizon-wireless-oligopoly/

Titus, P. A. (2018). Exploring creative marketing thought: Divergent ideation processes and outcomes. Psychology & Marketing, 35(3), 237-248.

Verizon Communications. (2017). Verizon closes 2017 with strong wireless customer growth and retention, well-positioned in new markets. Retrieved 4 August 2019, from https://www.globenewswire.com/news-release/2018/01/23/1299035/0/en/Verizon-closes-2017-with-strong-wireless-customer-growth-and-retention-well-positioned-in-new-markets.html