Sample Essay on Amazon.Com

Amazon.com

Market Structure

Market structures differ depending on the level of competition that exists in every market, and various conditions of the market in which the business operates. In the retail industry, Amazon.com operates in an oligopoly market structure because it meets the factors that characterize the structure. Amazon is among other few large firms that dominate this industry. Therefore, the organization does not act independently; it has to take into account the potential reaction of its closest competitors before making a decision. For this reason, the prices remain stable in the market for long durations even if short price wars occur regularly. There are barriers to entry that ensure the firm maintains its dominating position in the market. They make it challenging or costly for competitors to enter the market (Dana, & Fong, 2011). For example, Amazon uses aggressive advertising and promotions to deter new entrants, improve its brand loyalty, and lock in existing customers. The organization offers differentiated products that have a strong brand identity. Its operations target a wide range of market segments, which also provides a huge variety of product choices (Amazon.com, Inc, 2015). .

Level of Competition under:

  1.  Oligopoly Perfect competition

In an oligopolistic perfect competition market, Amazon will be operating in a market characterized by a wide range of similar products resulting in many substitutes. There will be few barriers to entry for new entrants, and the forces of demand and supply will determine the prices in the market. There will be an equal access to technology such that innovation and productivity of all businesses will have similar benefits from the available economies of scale. There is full market information accessible to the consumers such that they are aware of what is offered in the market and the prices of the products. The consumers rely on cost differentiation in order to buy products from a business. Thus, the level of competition in this market structure will be very high for Amazon.com (Dana, & Fong, 2011).

  1. Monopoly Monopolistic Competition

Monopoly Monopolistic competition enables firms to have a significant percentage of monopoly power in a market. In this case, a huge number of big organizations are in competition with each other. There are few barriers to entry and the products in the market are differentiated from each other but similar in nature. Thus, consumers are after the differences in the products’ characteristics rather than the price differences. Businesses experience certain limits in setting the prices they will charge for their products. The level of competition will be medium in this type of market structure (Dana, & Fong, 2011).

Competitive Strategies for Maximizing Profits over the Long Run

To maximize profits over long run, three competitive strategies including cost differentiation, products differentiation, and focus may be used. In cost differentiation, the firm ensures it incurs the least costs in the industry through various means, such as economies of large scale, innovations, and other factors that lead to cost advantage. If the organization manages to have a sustainable cost advantage, it will successfully compete with its rivals by setting lower prices for their products. This will increase the number of customers and improve their profitability over the long run (Ormanidhi, & Stringa, 2008).

The other competitive strategy is product differentiation whereby the firm seeks to provide unique products and services to its customers. In this case, a few of the specific attributes that are perceived important by the buyers in the industry are taken into consideration, and the firm positions itself in a manner it can meet these needs. It charges a premium price for these products, which acts as its reward (Ormanidhi, & Stringa, 2008).

The third strategy is focus using the cost and differentiation variants. The strategy rests on the differences between the targeted segments and other industry segments. The firm will have to choose a given segment of buyers in the industry and come up with a strategy that serves only this specific group. In cost focus, a firm seeks to have cost advantage in its targeted segment by exploiting the behaviors towards costs. In differentiation focus, the aim is to have differentiation in the targeted segment by exploiting special needs (Ormanidhi, & Stringa, 2008).

Effectiveness of these strategies in an oligopoly market structure

Cost differentiation strategy may not be effective because in an oligopoly market, the few organizations in the market are large. Each one of them is in a position to obtain cost advantage through various factors, implying that firms will copy one another. If this happens, there will be an increase in the supply of the products offered by the firm due to lower costs, but there will be no equivalent change in their demand. Failure to have any changes in quantity demanded will lower overall prices in the market. Reducing the impact of cost is an advantage, as all businesses will be required to sell at lower costs. Government regulations would make this strategy less effective because other businesses may be protected by price limits that have been set to prevent the reduction of prices below certain limits (Dana, & Fong, 2011).

The differentiation strategy is effective because it will not affect the demand and supply of products in the markets due to price changes. The organization prices will be set according to the special attributes added to the products, thus, the demand for those products will increase as a result of special features. The price elasticity of demand will not negatively affect the sales. Government regulations have no significance while enhancing the uniqueness of the products. Thus, they will not hinder its implementation (Dana, & Fong, 2011).

The focus strategy may also be effective if cost and differentiation focus on one segment by the firm is not copied by the other firms. If other firms copy the strategy to focus on a segment that is similar to the other firm, this strategy will not be effective. Focusing on the same segment will increase the supply in that particular segment without any significant changes in demand. This will lead to reduction in prices, as the quantity demanded is less than what has been provided in the market for that segment. Government regulations may also affect the cost focus strategy if there are set price limits. The market structure enables the provision of varied products. Therefore, it is possible to focus on cost and differentiation in various segments (Dana, & Fong, 2011).

Recommendations

The best strategy that the organization can choose is differentiation strategy because it is not undermined by various factors in the oligopoly market. The firm can use its research and development departments to find out the unique attributes buyers need. They will then employ innovations and new technologies to incorporate these attributes into their products. Moreover, aggressive marketing and promotions will ensure that they create strong brands and gain customer loyalty leading to high profits over the long run.

Conclusion

Amazon.com operates in an oligopoly market structure that is characterized by a few large firms offering a wide range of products and a lot of interdependence among the firms. In an oligopoly perfect market competition structure, Amazon will face high level of competition while in a monopoly monopolistic competition; it will face medium level competition. The main strategies that can be adopted include cost differentiation, product differentiation and focus. Among the three strategies, product differentiation is more effective because it is more likely to maximize profits over the long run.

References

Amazon.com, Inc. (2015). Amazon.com, Inc. MarketLine Company Profile, 1-46.

Dana Jr, J. D., & Fong, Y. F. (2011). Product quality, reputation, and market structure*. International Economic Review52(4), 1059-1076.

Ormanidhi, O., & Stringa, O. (2008). Porter’s model of generic competitive strategies. Business Economics43(3), 55-64.