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Differentiating Between Market Structures Essay Sample

Differentiating Between Market Structures Pages
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Microsoft is the software giant responsible for bringing Windows operating system to the PC (personal computer). Microsoft is also a known and well respected company in the global market. The tech giant has dominated the computer industry since 1981. Due to the nature of such a huge company, Microsoft has its hands in multiple markets. Microsoft currently competes in file hosting, software, operating systems, and gaming consoles. Unfortunately, each of the afore-mentioned markets differ from one another. For the purpose of this paper, the market that is being chosen concerns the evolvement of Microsoft’s operating systems (OS). Microsoft is the undisputed leader in the market for operating systems. The Microsoft Corporation has produced the majority of operating systems for all PC’s (“Microsoft.com”, n.d.). Market Structures

There are four types of market structures, Monopoly, Perfect Competition, Monopolistic Competition, and Oligopoly. They are differentiated by the number of firms in the industry, barriers to entry, pricing power of the firm, output decisions interdependence, and whether products are homogeneous (Colander, 2013). Monopoly

A monopoly is a situation in which there is a single producer or seller of a product for which there are not close substitutes. The most common example of a natural monopoly would be an Electric (power) company. Power companies are characterized by very large costs for their infrastructure making it inefficient to have more than a single firm in a region because of the high cost of duplicating facilities needed to (Colander, 2013).

Perfect Competition
Perfect competition is described as a market structure where competition us at its greatest possible level. The four key characteristics of perfect competition are multiple firms in the same industry, identical products produced and sold, freedom of entry into and exit from the industry, and perfect knowledge of pricing. A real life market structure considered “perfect competition” would be agriculture such as the growing and selling of fruits and vegetables (Colander, 2013). Monopolistic Competition

Monopolistic competition is a market structure in which there are several or many sellers which each produce similar but slightly differentiated products. The Difference cab be on the basis of color, design, size, taste, fragrance, and etc. Each individual producer can set prices and quantity without affecting the marketplace as a whole. Characteristics of monopolistic competition are similar to both perfect competition and monopoly (Colander, 2013). Oligopoly

An oligopoly is a market form in which an industry is dominated by a small number of sellers which sell almost identical products. There are barriers to entry into an oligopoly. Oligopoly is characterized by the tension between cooperation and self-interest among the sellers. For example, if the oligopolistic firms can cooperate they can increase pricing and share profits. If they cannot cooperate and instead choose to compete due to self-interest, then prices as well as profits will decrease (Colander, 2013). Microsoft’s Market Structure

At first glance Microsoft may appear to operate in a monopoly, however, this assumption is not accurate because in a true monopoly there would be only one seller with no close substitutes, a blocked entry, and one firm to control pricing of the product. Microsoft currently has several competitors such as; Apple, Google, Linux, Unix, and Sun Microsystems. Even though the market share of these companies is small compared to Microsoft this competition means that Microsoft operates as an oligopoly. Microsoft currently holds 90.93% of the PC operating system market (“Netmarketshare.com”, 2006-2015). So even though Microsoft competitors own less than 10% of the market, Microsoft is still not classified as a monopoly. Competitive Strategies

In order to maximize profits there are several competitive strategies that would help increase sales for Microsoft’s available OS. One competitive strategy that Microsoft may consider would be lowering the price of the software. Microsoft’s current OS average cost is $200 but can be as high as six to seven hundred, while Apple currently offers theirs on average at about $50. Lowering the average cost of the OS could increase demand as well as sales (“Calibex”, 1999-2015). Another competitive strategy that could be considered would be increasing the target audience. Microsoft has consent to make a bold play for the workplace while leaving the school market open for Apple. The idea was that if adults were using Microsoft OS at work all day, then they would be more likely to purchase the OS for their home PC. This was a good strategy in the beginning but may need to be changed for future sales.

Microsoft will have major competition with Apple over the next five years because schools of all levels are expected to switch from computers to iPads. This may possibly hurt Microsoft’s future sales because as the students enter the real world they will continue to depend on Apple for their future computer needs (Hughes, 2011). The final Competitive strategy Microsoft may consider would be the introduction of a differentiation strategy. Differentiation strategy is defined as an approach under which a firm aims to develop and market unique products for each customer segment. For example; Microsoft Windows currently comes in three tiers, home, professional, and ultimate. Microsoft could increase sales by adding another tier of business software. This would enable Microsoft to lower the home tier price making more affordable for individuals, while offering two tiers of business platform software. By providing businesses with another version of Windows, Microsoft could greatly increase the upgrade rate of Windows in the business world. Strategy Recommendation

In this author’s opinion Microsoft would increase sales by focusing on the school market. Donating computers as Apple has done would allow them to introduce their software to the up and coming generation. This could help them to remain dominant in the industry by guaranteeing future sales. Once the students become familiar with Microsoft and comfortable with using Microsoft’s OS, they will be more likely to purchase the product in the future.

Conclusion

Since Microsoft operates in an oligopoly market they must keep their marketing strategies competitive and current. Microsoft has been the leader in operating systems since its inception into the real world. A tech giant such as Microsoft must continue to look for new ways to increase revenue. Increasing revenue involves reviewing competitive strategies on a regular basis to ensure that current strategies are still effective in keeping revenue at its highest. As long as Microsoft continues to be innovative and technologically trustworthy, they should have no problem remaining at the top of the OS industry.

References

Calibex, (n.d.) Retrieved from http://www.calibex.com/Operating-Systems–a-prodreviews +bestfor-_-Mac–zzOperating+Systems+Withz300474zcalibex2zB7z5—html Retrieved From Internet on May 24, 2015.

Colander, D.C., (2013). Microeconomics (9th ed.). Retrieved from University of Phoenix eBook collection database.
Huges, N. (2011). Schools expect to have more iPads than computers in next 5 years. Retrieved from http://appleinsider.com/articles/11/10/31/schools_expect_to_have_more_ ipads_than_computers_in_next_5_years/ Retrieved from Internet on May 24, 2015. Microsoft timeline, (n.d.) Retrieved from www.microsoft.com/about/companyinformation/ visitorcenter/timeline Retrieved from Internet on May 24, 2015 NetMarketShare,(2006-2015). Retrieved from http://www.netmarketshare.com/operating-system- Market-share.aspx?qprid=10&qpcustomd=0 Retrieved from Internet on May 24, 2015.

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