Retail sales are indicators of microeconomic conditions presented in a given area at a particular place in time. Since Sam Walton opened his first Wal-Mart store, Wal-Mart has been making ripples throughout the micro economies of America. Wal-Mart’s market structure is typical of most of our nation’s largest corporations in that they are an oligopoly (Brown, 2010).
According to Colander (2010), “An oligopoly is a market structure in which there are only a few firms and these firms explicitly take other firms’ likely response into account when making decisions. Furthermore, given that Oligopolistic firms are few, they are interdependent of each other and can either be collusive or noncollusive. It is this interdependence amongst the firms that distinguish them as an oligopoly vice a competitive monopoly. Target and Costco are considered to be Wal-Mart’s competition because they offer similar products and services to their customers.
Through personal experience this writer and his family members typically compare the quality of the item, to the price we are willing to pay for that item, and we usually purchase that item from the firm that offers us the best quality for the price and shopping experience. A byproduct of this competition is a term called sticky prices. Sticky prices are the result of an informal collusion behavior and correlates to a kinked demand curve as one reason firms do not lower their prices to outsell their competition.
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Any increase or decrease in price will be met by their competition, causing the less elastic portion of the demand curve and its corresponding marginal revenue curve to cause a kink in the demand curve. This kink causes the marginal revenue curve to have a gap and is resultant from the theory of sticky prices (Colander, 2010). One competitive strategy that Wal-Mart can immediately put to use to maximize their profits over the long run would be to limit the amount of retail locations they open nationally and increase the number of retail locations they are working to open internationally.
The company’s balance sheet shows that their international expansion has been the key to producing profits during the tough economic conditions of the previous several years. Many countries have a lower cost of living than Wal-Mart is accustomed to operating in and the decreased salaries and operating expenses overseas would serve to boost sales while increasing revenues. Wal-Mart can further maximize its profits in the long run through data mining product sales in order to establish market share for each retail location.
This data would then be used to set-up the display of products for sale in a location and manner that would increase the volume of items sold. This strategy would cost Wal-Mart some time and money in the short run; however it would generate more sales in the long run and increase customer satisfaction in the short run. Both lead to an increase in sales and therefore maximize profits. Wal-Mart has another strategy available that can assist in maximizing revenue. That strategy involves the equilibrium of the labor market in all of the locales in which they operate.
Changing where the labor market equilibrium intercepts requires adjustments to the supply of labor and demand of labor. Market equilibrium cannot exist without either supply or demand and should Wal-Mart take advantage of changing the variables by closing certain retail locations and expanding existing locations into super stores, they lower overhead costs and increase market share. This strategy will ultimately lead to maximized profits over the long run. Perfect competition is a market structure where economic forces operate unimpeded (Colander, 2010).
In this market both sellers and buyers are considered price takers because they take the price as determined by market supply and demand. The number of firms is large enough so that what one firm does, it will not have an effect on the others. The firm’s products are identical, and competitors and consumers have complete information about the product and no firm has a competitive advantage over another (Colander, 2010). The polar opposite of perfect competition is called a monopoly.
According to Colander (2010), “A monopoly is a market structure in which one firm makes up the entire market. ” Monopolies face no competitive pressure from other firms and exist because of barriers to entry into their market (Colander, 2010). Drug companies are commonly viewed as monopolies because of the patents they hold entitling them to be the producers and providers of certain drugs. The market structure of monopolistic competition is market in which there are many firms selling many different products and it has few barriers to entry (Colander, 2010).
The distinguishing characteristics of monopolistic competition are that there are many sellers of differentiated products with multiple dimensions of competition and it allows for easy entry of firms in the long run. In conclusion, Wal-Mart has cemented itself as one of the best known oligopolies in the world. Wal-Mart can maximize its profits in the long run through decreasing its volume of domestic retail stores and increasing the number of international stores.
They can also increase profits through technology applications such as data mining and making changes to their labor market equilibrium. Lastly, we discussed the other three types of market structures, they are perfect competition, monopoly, and monopolistic competition. It is this writes opinion that Wal-Mart will continue to remain a staple of our micro-economy and act as an indicator of macroeconomic conditions for many years to come.
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