Target Corporation is an American firm in the retail discount industry. It deals with a wide assortment of goods such as electronics, clothing and apparel, jewelry, and groceries among other consumer and household goods. The company is an oligopolist. Oligopoly market is characterized by low ease of entry, which can be caused by economies of scale and legally imposed barriers. This type of market has few dominant firms (Besanko & Braeutigam, 2010). The main companies in this industry are Wal-Mart and Kmart. Oligopoly firms can choose to have homogenous products or they can differentiate them. Target has chosen to differentiate in terms of the type of products it chooses to stock. For instance, it does not just sell clothes, but it makes sure that it has the latest designer labels. This is in addition to selling other consumer goods common in other discount retail stores. Target Corporation targets a niche market of shoppers who are privileged. Firms in this type of market produce a large quantity of the total output in the industry. This means that they have significant influence in the price of its products.
Entry into the oligopoly market is difficult. Barriers can include economies of scale, legally imposed government barriers, high cost of entry, and ownership of key input. In addition, business cycles can act as barriers since they will eliminate firms who are not able to compete. Firms that do not have sufficient resources are not able to compete in this market. Those who are able to afford advertising and the necessary technology tend to have an added advantage and they become dominant. These barriers determine a firm’s ability to become an oligopoly (McEachern, 2013). Not every company can become a retail discounter. It would have to compete with the established brand and incur heavy start up costs. A new firm is unlikely to realize any growth and profits since it would not be filling any demand in a market dominated by a few large firms.
An oligopoly differs from the other markets, which include perfect competition, monopolistic, and monopolies. Monopolistic competition type of market structure is characterized by large number of firms selling differentiated products. Firms in this market can differentiate their products in different ways such as physical differences, location, services and product image (McEachern, 2013). The firms are influential in determining the price of the products. Sellers ensure that the price differences are small. Despite the differentiated products, consumers are aware of the price and they will know when they are being overcharged. They consider the differences in the products to be small and they will not accept high prices.
Entry and exit barriers in the market are low. The ease of entry of other firms in the market ensures that no single firm can dominate the market. It also reduces the chances of existing firms in the market to collude. In addition, it enhances competition among the firms. Each firm tries to distinguish itself and building a brand name is important in this market. Therefore, firms will strive to ensure that they get customers and they will engage in activities such as promotions and advertisements. In addition, they strive to ensure that they maintain high quality products and good customer relationship (Besanko & Braeutigam, 2010).
Firms in this market are price makers. There are many buyers in the market and a single buyer cannot influence the price. The presence of a large number of firms, concentration of differentiated products, and ease of entry are the main difference between a monopolistic market and an oligopoly. The difficulty in entry in an oligopoly makes it possible for firms in this market to make profit. Firms in this market behave interdependently. A firm has to consider how the action it takes will affect the competitors’ behavior because there are only a few firms in this market. There are few sellers but many buyers in this market. Thus, no single buyer can determine the price of the product. Firms selling standardized products in this market tend to be interdependent compared to those selling differentiated products. This makes them wary of the competitors’ actions. Firms engage extensively in the use of non-price competition so that they can avoid price wars (McEachern, 2013).
Perfect competition is characterized by many buyers and sellers. This differs from an oligopoly, which has few buyers but many sellers. Unlike oligopolies, a single company cannot control the price of its products since it is a price taker. A firm’s decision to stop production or to produce and sell as much as it can, will not affect the other firms as a company produces only a small portion of the total output. Companies offer the same products and this limits the customer’s preferences. Therefore, sellers have to find ways of attracting consumers since they cannot depend on the product variation. On the other hand, firms in oligopolies can choose to differentiate their products (Besanko & Braeutigam, 2010).
The presence of many sellers in the market means that an individual seller cannot increase the price of his commodity since the buyers will go to his competitors. Buyers have to accept the going price since a single buyer cannot influence the price of the products. This type of market structure is also characterized by ease of entry and exit. Companies are free to enter and exit the market since there are no barriers. In the end, companies in this type of market structure are not able to make excess profit. In contrast, it is not easy to enter an oligopoly market and this makes it possible for the companies to realize profits. Consumers in perfect competition markets have perfect knowledge concerning product prices and this prevents the sellers from charging more than the other firms charge (McEachern, 2013).
A monopoly type of market structure is characterized by the presence of a single dominating firm in the market. It produces unique products and services that do not have any close substitutes. It is difficult for other firms to enter the market. A company in this market has much control in determining the price of the product. Monopolies are able to prevent other firms from entering the market because they control scarce resources. Some monopolies are natural. They incur lower cost to produce the entire output, which could not have been possible, if they had competitors. Other barriers include network externalities, technological superiority, and government action such as patents and copyrights (McEachern, 2013).
Target would have a hard time operating in the same industry as firms in perfect competition market structure. It would be easy for other companies to enter the market and this would lower the cost of goods, which would in turn lead to reduced earnings. However, the company can have an advantage working in a monopoly. It would act as the competition in this market. It would capitalize on the weaknesses of the existing firm so that it can make a profit. Some of the measures taken would include lowering the price, improving the quality, and making it easy for the consumers to access the product. Target would have to differentiate its products to succeed in a monopolistic market. It would also need to lower its prices so that it can attract customers. The differences of differentiated products in monopolistic market do not warrant huge changes in prices and firms can lose consumers if they choose to charge highly.
The company can differentiate its products to attract more consumers. Consumers want something different from the norm. Target sells groceries and other products that its rivals stock. By differentiating the products, it will give consumers a reason to choose it instead of its competitors. Consumers are also attracted by the services offered. Target can increase its service offerings to ensure that all the consumers who visit its stores get a different experience. The company can increase its accessibility by increasing its presence in different locations. Expanding the number of stores will ensure that more customers in different regions can access it and this will increase its competitive advantage. Marketing strategies are important, and they ensure that consumers and potential customers know what to expect when they get to the stores. Target has curved itself as a company that deals with designer clothing and this has enabled it to attract a particular niche market. However, it also deals with consumer goods and it offers them at relatively the same price as its competitors. However, many consumers have the perception that it is expensive (Reingold, 2008). By engaging in different marketing strategies, the company will make more people aware of its products, services, and prices.
These strategies are effective in an oligopoly. Firms in this market spend money on advertising and other marketing strategies. They are flexible in the type of product they can choose to stock. Their decision to differentiate products ensures that they gain a greater competitive advantage. Since the market is dominated by a few large firms, the companies are aware of their rivals’ strategies. This knowledge enables them to implement other different strategies and at the same time capitalize on the weaknesses or shortcomings of their competition. Target already has the resources to expand its market. It has enough experience in the market. These experiences and resources will enable the company to open up stores in other areas.
Besanko, D., & Braeutigam, R. (2010). Microeconomics. Hoboken, NJ: John Wiley & Sons
McEachern, A. W. (2013). Microeconomics: A contemporary introduction. New York, NY: Cengage Learning
Reingold, J. (2008). Target’s inner circle. CNN. Retrieved from http://money.cnn.com/2008/03/18/news/companies/reingold_target.fortune/