Market Structures and Sustainable Competetive Advantage

The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions (Wiley Finance)The different market structures have different view points with respect to competition. In monopoly, competition is not fierce as the monopoly firm has an advantage over other firms. This advantage may be in terms of product, process, technology, etc. In case of monopolistic competition, all the firms try to achieve this advantage so that they could be more successful than their competitors. Firm’s operations in oligopoly and duopoly market structures also aim for sustainable competitive advantage to survive in the market.

In the short run, a firm’s competitiveness derives from pricing or application attributes of the products but in the long run, a firm’s competitiveness derives from its ability to develop and grow at low cost and at a faster pace than its competitors. The most important point about competitive advantage is that management must be able to integrate corporate wide technologies and processes into competencies that provide a solid ground to the individual business so that it could adopt quickly to the ever changing opportunities. Core competence has been regarded as an effective way to help the organisation in the task of restructuring its products, markets, management, organisational setup and technology in the complex and dynamic environment.

According to Prahalad and Hemal, core competence is the collective learning in the organisations, especially how to coordinate diverse production skills and integrate multiple streams of technologies. When the organisation is faced with competition in the market, it is the core competence which proves to be an asset and which can be enhanced through application and sharing.
Determination of price and warranty length for a normal lifetime distributed product [An article from: International Journal of Production Economics]In all the market structures, price determination is an important strategy to win competition but it is the core competence concept which focuses on the preservation of firm’s existing superior skills. For instance, a monopolist would always like to remain a monopolist by continuously improving and enhancing the product or service because of which it has hold over the market. On the other hand, in monopolistic competitive market every firm tries to compete through new ideas and strives to develop core competencies. With respect to core competencies, Prahalad and Hemal provide the following key issues:
  1. A core competence is one that provides access to various markets. For example, a firm can operate as a monopolist in one business and can operate in a monopolistic competitive market at the same time in other business.
  2. A core competence should make a significant contribution to the perceived customer the benefits of the end product.
  3. A core competence should be difficult for competitors to initiate. For instance, a firm entering a monopoly market may acquire some of the processes that comprise core competency but it will not be easier to duplicate monopolist’s pattern of internal coordination.

In any market, sustainable competitive advantage plays a major role and core competencies are nurtured so as to meet the turbulent environment and improve and grow by grabbing the right opportunity at the right time.

Apart from core competence, the possible strategic alternative to have sustainable competitive advantage for different market structures are as follows:

Perfect Competition and the Transformation of Economics (Routledge Foundations of the Market Economy)Monopoly– Stability is the best strategic alternative. For strengthening the position, vertical integration (either forward or backward) will be most effective. If any competitor enters, mergers and acquisitions may be the appropriate option.

Perfect Competition- The firm should not go for advertising or price differentiation. Concentration strategy will improve the economics of scale and firm’s sustainable competitive advantage will increase.

Monopolistic Competition- Advertising, quality control and branding are the appropriate measures. Strategic alliances with respect to price may work. Differentiation strategy may work. Diversification strategy may further enhance the competitive strength.

The Monopolistic Competition Revolution in Retrospect
Duopoly and Oligopoly- Wide variety of options are available. They may go for diversification, integration, mergers, etc. They may look into promotional strategies for better competitive advantage.