Market structures Franchise firms are granted the rights to operate their businesses in particular locations. They include companies dealing with fast foods, automobiles, financial services, cleaning and other products. The MacDonald’s is one of the largest franchise firms operating in the restaurant industry. The company deals in fast foods, with over 35000 branches worldwide. The firm, just like any other businesses is faced with stiff competition, but it has remained in the company due to the business strategies it employs to beat the competition. It advertises its products on the billboards, television, radio, newspapers, and it is involved in events such as sports sponsorship. The company faces stiff competition from firms such as the Burger King Worldwide that sells similar products. The many sellers in the fast foods firms sell heterogeneous products. Players in the restaurant industry face various competing aspects such as price, location, quality and variety of foods and value. McDonalds can increase its market power by investing in qualitative research on the demographics of the various locations before setting up a branch. Further, the firm should carry out the research regularly to identify the changes in customer tastes and preferences and make necessary adjustments. The market strategies used by the competitors should also be considered so as to design appropriate means of maintaining their clients and creating new customers. McDonalds operates in the monopolistic market structure since there are many sellers of the fast food products though they are differentiated (Mankiw, 2011). The firms have the freedom to enter or leave the market at will thus there are many competing firms in the market. The consumers in the industry lack perfect knowledge about the products thus the firm can increase its market power by making the consumers believe that its products are superior through advertising. The firm can use strategies such as reducing the prices of foods or use other non-price means such as offering gifts to the customers to promote sales. Since the demand curve in the monopolistic market structure slopes downwards, the firm can increase its market power by reducing the prices. In the efforts to protect the consumers, the government may regulate the market by ensuring the prices are fair, and that firms are free to enter the market so as to increase competition. The government may also grant special patents to firms to make them exclusive producer of certain products in exchange for information on their invention. In the restaurant industry, the firms may get an exclusive patent in the packaging of their products. In the event that the government grants McDonald's a special patent, the firm would sell its products, with restrictions to entry of other firms in the market. This would reduce the competition and increase the firm’s market share. The firm would then operate as a monopoly thus would be the price maker in the industry. A patent holder is not allowed to use their patents once the license expires. The expiry of licenses that permit a firm to use its patent rights should expire to allow other firms in the industry to obtain the patents (Leslie, 2010). If a firm was to obtain a patent that would never expire it would be tempted to be involved in unhealthy business practices such as charging high prices to the consumers since there are no competitors in the market (Van, 1997).
Leslie, C. R. (2010). Antitrust law and intellectual property rights: Cases and materials. New York: Oxford University Press Inc.
Mankiw, N. G. (2011). Principles of economics. Mason, Ohio: Thomson South-Western.
Van, H. J. (1997). Prepackaged law: Franchise law firms and the transformation of personal legal services. Westport, Conn: Quorum.