Oligopolistic Market Structure

Maximizing profits through the stages of market structures is challenging and different techniques are used in each stage. During the monopoly stage Quasar's profits are maximized using pricing, advertising and production improvements. Because there is no competition prices are set at the point where the demand is highest relative to the average total costs. Although setting the price lower to gain more demand may position the company for a higher market share in the future there are other techniques for gaining market share in future stages. Advertising budgets are set so that consumers are informed about Quasar's product and production improvements are implemented to reduce the costs associated with producing the product. During the Oligopoly stage profits are maximized by setting the price at a point where the company can maintain market share. The company must also predict the competition's reaction to it's price change. As more and more companies move into the market during the monopolistic competition stage, the company's market share decreases. To continue to maximize profits the company must strongly differentiate its product. Quasar's best strategy would be to introduce a new brand into the market. This will reduce the unused capacity in the manufacturing plant and improve demand for both products. During the perfect competition stage Quasar should maximize profits by continuously improving processes. This will reduce costs, which is the main strategy used in this stage of the market structures.

An oligopoly market structure is dominated by a few large producers of a homogeneous or differentiated product. Because of their fewness, oligopolists have considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions. Although the most common oligopolies are national, the beer and automobile industries are examples, there can be regional or local oligopolies. The retail automobile parts industry is one such local oligopoly. In the Colorado Springs area there are few retail automobile parts companies, Pep Boys, AutoZone, Checker, and Advanced Auto Parts, that control the market. Although all of these companies sell products to consumers and repair shops, Pep Boys tries to differentiate itself by marketing to the Do-It-Yourself consumer. Because of the mutual interdependence between the companies Pep Boys must use methods other than pricing stratagies to maximize revenues. One way they've done this is to reduce labor costs. In 1996 Pep Boys implemented changes in the business plan to reduce labor requirements across the enterprise. Pep Boys implemented a new slotting plan for the distribution centers, modeling the new plan on retail stores pegboard hooks. They categorized products by family groups and created store shipments consisting of reusable totes packed with aisle-specific, family groups. This reduced the store-stocking time by 30%, from 18 hours to 12 hours per delivery. In 2004 Pep Boys implemented a voice-directed system in its distribution centers. This system allowed the warehouse workers to replace handheld devices and printed instruction sheets with headsets that are connected to belt-worn computers. This frees up the worker's hands, keeps his eyes on the job, and speeds up the time it takes him to complete each task. This new system gained Pep Boys a 12 percent increase in productivity and a 50 percent increase in accuracy. By finding creative ways to reduce costs and improve productivity, Pep Boys is able to compete in local markets while still maximizing revenue.

"Pep boys revs up its distribution: the focus of any slotting program is to reduce employee travel time and increase productivity. How that is accomplished will vary widely.(Slotting)." Material Handling Management 62.3 (March 2007): 38(5). InfoTrac OneFile. Thomson Gale. University of Phoenix. 1 May. 2007
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Sowinski, Lara L. "Talk about getting more out of your warehouse! Voice-directed technology is taking warehouses to new levels of productivity while improving the bottom line for shippers' supply chains." World Trade 18.8 (August 2005): 54(3). InfoTrac OneFile. Thomson Gale. University of Phoenix. 1 May. 2007
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