A monopolistic competition market structure is one common structure in the current business and economic conditions. This kind of market structure incorporates the competitive market and monopoly market structures. It comprises the characteristics of both kinds of markets. The market comprises of many firms, all competing for the same consumer market. However, the goods produced by each of the firms in the monopolistic competition structure are slightly differentiated. These products are close substitutes to one another. This characteristic grants the firms in the market power to act like monopolies. There are many sectors or industries whose products markets are structured in monopolistic competition; for example, the technology and electronic industry. One such product is the computer.1
Computers are electronic machines that come in different forms and designs. There are laptops, desk tops, mac books, and palm tops. There are also many computer making companies which make their products in their own unique designs and with certain applications in them. Therefore, the computer market can be said to be a monopolistic competitive market because the products are differentiated. Each firm produces computers that are unique in terms of ability and applications. There are Apple computers, Dell, HP, Acer, and Samsung computers among many others. Therefore, the products from different firms can be substitutes for one another. Furthermore, the computer market is monopolistic competition because the companies have monopoly power but there are many firms in the market producing computers. The firms also set their own prices, and there is full knowledge between sellers and buyers in the market. Therefore, the computer market is a monopolistic market structure. The scope of the computer market is actually global in nature. This is because these companies have all gone global. However, an ideal scope of analyzing the computer market is at national level where the interaction between buyers and sellers can be analyzed properly.
The concentration of computer producing firms in the United States is quite high. There are about six major computer hardware making companies in the country. Each of these companies has its own market share, which it monopolizes. The fact that there are many firms in the market brings out the characteristic of monopolistic competition. The market shares of these companies are not the same because some companies have great appeal to consumers hence; they own larger market shares compared to other firms. The firms that produce computers of high quality are popular, and their market share is large. There are some firms that have large market shares because their computers are consumer friendly and cheap in prices. Available information online indicates that in the U.S.A computer markets, HP owns 27%, Dell 23%, Apple 11%,Toshiba 10%, Acer 9% and the rest of the companies share 21%. The market concentration of computers is actually almost proportional to the market share. When HP has the largest market share, it implies that it has a high market concentration because consumers buy the firm’s products.2
The market 4-firm market concentration ratio in the USA computer market 71%. It is obtained by adding up the total market share of the largest 4 firms; 27+23+11+10 for HP, Dell, Apple and Toshiba respectively. This is a medium concentration ratio which suggests that the market operates in an almost oligopoly structure. However, there is no unique concentration ratio that is said to separate monopolistic competition from oligopolistic markets. The market has no clear barriers of entry. However, there are no some brand loyalties where some companies are entitled to use certain software. For instance, Apple has a brand loyalty where only its products can be used to purchase music from iTunes. This makes the product unique. Generally there are no barriers to enter the USA computer market because the producers basically produce similar products, only differentiated.
The marketing and advertising environment is very tight where each company invests a lot of money to prove that its product is the best. New entrants in the markets may not cope with this aggressive market environment because they will incur too many costs than their capital structure can allow. It may be hard for new entrants into this market because the capital good expenses are very high and the time taken to set up a production firm is long. It requires certification by technology bodies and many other legal processes before a company starts production. The economies of scale also play a major role in entry into the computer market. Normally, the more a company produces, the less it incurs. This makes it difficult for new entrants into the market because their low production implies they spend more than they produce; add that to the marketing costs and it makes entry almost impossible for startup firms. Only established firms have joined the market because they can market their goods and have no set up costs. There are no retail barriers in the USA computer market; each product has its own niche in the market.
In monopolistic competition, there are no barriers of entry into the market. Since there is perfect information to buyers and sellers, other sellers can join the market if the profits in that market are high. In the USA computer market, there have been new entrants in the last decade. For instance, Apple joined the industry last behind big companies like Lenovo, Dell, HP and Toshiba. There are also product or brand loyalties in the computer market. The loyalty of products shows that despite differences in price and quality of computers, consumers prefer certain producers for personal reasons. In the USA, Apple produces expensive computers but consumers loyal to the company claim the computers are of high quality. Each company has its own loyal customers. Each firm invests a lot of resources in advertising its computers to increase and protect their market share. The computer market has no barriers of entry, however, in most cases only established companies enter the market because they can adapt easily to competition and take advantage of economies of scale.3
The computer market in USA has much differentiated products. The computers produced serve the same purpose. However, the computers have different applications, speeds, quality, prices and adaptability to be used by different software. This means the computers from different companies can act as substitutes to one another. Furthermore, there is perceived differentiation of products where consumers believe some computers are superior to others when actually there is no difference. The computer market is said to have differentiated products both in terms of features and also consumer perception.4
Therefore, it is clear that the computer market in USA is a monopolistic competitive market structure. This is because the market exhibits characteristics of a monopolistic competitive market such as product differentiation, no barriers of entry into the market and many firms in the market. The firms also engage in different strategies to market and compete with one another.
Chaffin, Bryan. US Computer Market Share. 14 July 2011. 13 November 2012
Economics Online. Monopolistic competition. 2012. 13 November 2012
Mankiw, N Gregory and Mark P Taylor. Economics. illustrated. London: Cengage Learning EMEA, 2006.