Market Structure Essay Example

must “take” or accept the ongoing price.

Based on the price determined in the market, a perfect competition sets a production level. Market supply and demand conditions as well as the competition within the industry set the price of the goods sold. This causes a perfectly competitive firm to face a perfectly elastic demand curve which is a horizontal line. With over 200,000 restaurants worldwide, fast food restaurants are categorized as the largest sectors of the food industry grossing over $100 billion in sales. McDonald’s as an Oligopoly: Differentiating Market Structures

A well-known organization, McDonald’s, has been feeding Big Macs and Happy Meals (goods or services produced) to hungry customers since the mid 50s and is currently today the number one hot spot for adults to allow their children to play and have fun. According to a website called “Libbyaanoosterr,” McDonald’s operates under an oligopoly market structure, which is a type of firm consisting of a small number of large independent sellers. Changes in prices, quantities, and qualities are known to be reacted from other firms. A few firms under the McDonalds organization can dominate by setting their own prices.

It is differentiated from a monopoly (a market with one seller without a close substitute for its product) since there is neither a unique product (hamburgers) that is particular nor a single seller (McDonald's-An Oligopoly, 2013). It is also differs from a monopolistic competition (imperfect competition) because originally McDonald’s is a component of the food industry, which is a perfect competition. Due to the constant rise and fall of the economy on a daily basis, McDonald’s firms can decide whether to higher

or lower the prices of their products, primarily hamburgers, in order to maximize annual revenue.

The market structure was decided upon one story quote, which is from the McDonald’s website, “Can you imagine a world without the Big Mac? Or Chicken McNuggets? Or Happy Meals? Luckily, back in 1954, a man named Ray Kroc discovered a small burger restaurant in California, and wrote the first page of our history. From that humble start as a small restaurant, we are proud to have become one of the world’s leading food service retailers, with more than 33,000 restaurants (number of organizations) serving nearly 68 million people in more than 119 countries every day (McDonald's-Our Story, 2013).

Barriers to entry In an oligopoly, there are many barriers of entry such as economies of scales and legal barriers. According to an article titled “How is McDonald’s considered an oligopoly? ” written by Daniel Berra, he mentioned that at any time the magnitude of the firm or business rises, McDonald’s has a long-run standard total cost that declines. The size of its firm expands while the average cost decreases and other companies are purchasing franchises. McDonald’s finally uses a key component to rely on other companies’ actions called interdependence.

Through predicting the movements of other companies, strategy comes into play establishing a long time of success (Berra, 2012). The legal barriers of McDonalds deal with concerns such as meeting the food safety standards to exceed government regulations and making sure managers and crews are trained and certified. Price Elasticity of Demand (PED) As a long-time lover of McDonald’s, I remembered in the past when their food prices

used to be very cheap due to a low population of people with a large quantity supply of beef raised from livestock.

Customers could purchase and consume an abundant amount of hamburgers, with cheese included, in one sitting. Now, since the population has increased rapidly every year, there are more children in demand for consuming “Happy Meals. ” There are more young mouths to feed, which requires more supply of hamburger patties (cattle), fries (potatoes), and sodas (sugar cane). When the demand exceeds the supply, a shortage occurs resulting in large independent sellers in an oligopoly to increase their prices. Vice versa, when the supply exceeds the demand, a surplus occurs resulting in a reduction in food prices.

McDonald’s has a very high price-elasticity of demand (measure to show the responsiveness, or elasticity, of the quantity demanded of a product or service to a change in its price) due to a large amount of competitors it has. The formula for PED is (% Change in demand/ % Change in price). The greater number of competitors, the greater the % change in demand. Consumers will choose to spend their money where they get the best value or bargain since they are price sensitive. Presence of Economic Profits: Competitive Strategies and Evaluations to Maximize Profit

There are three or more competitive strategies McDonald’s use to maximize its profits over the long run: standardization, environment oriented, one dollar menus, willingness to innovate, and following healthy food trends. Standardizing production processes maintains the highest quality of their products by adjusting to changes in culinary regimes in different countries. McDonalds’s tries to protect the environment for the

future by reducing and managing solid wastes that each of the restaurants dispose each day.

Establishing one dollar menus reaches out to a large variety of budget-friendly consumers and will always be a traffic generator. Innovations of new food trends, demands, and technology have helped McDonald’s attract new oncoming consumers daily. For example, the Ronald McDonald clown and other characters targeted the children from infant to toddler stage. The toys inserted within a Happy Meal box bring a smile to a child’s face. Most McDonald’s restaurants have an indoor or outdoor playing facility which helps keep the children’s minds occupied while waiting on their orders.

Finally, the largest epidemic that needs to be addressed in this nation is obesity. McDonald’s made modifications to their menus and introduced new healthier foods options such as salads, wraps and fruits. These strategies are very effective ways to increase the demand for consumers at any age group. Staying within their budget while keeping them satisfied will ensure McDonald’s a maximum return for their buck in the future. Recommendations to Maximize Profit There are recommendations I feel that would maximize McDonald’s profits.

One is creating a diet regimen just like how Jared Fogle established the Subway diet and lost almost 300 pounds on his own. Maybe changing the meat from the traditional ground beef to lean ground turkey would be a healthier choice. McDonald’s can join and partner in the Biggest Loser campaign which can encourage people to lose weight and make healthier food choices. There could be a McDonald’s grandiose indoor and outdoor exercise facility designed for youth and adults nationwide. In order to keep consumers

coming back, they must be alive and healthy to do so.

Being an organization that cares about their consumers’ health is a huge factor for success. That means, being health conscious and giving the best service possible will generate maximum revenue in the future. Conclusion In conclusion, McDonald’s has the largest market sells until this day. Hungry children and adults are in desperate need to find the next best thing McDonalds has to offer. Whether people might have to wait forever in a long line inside the lobby or at the drive-thru, the desires and demands for a juicy hamburger are endless.