SELECTION OF MARKET STRUCTURE
By Vivian Chui
Perfect competition
A perfect competition is a market structure that consists of a very large number of small firms, where the firms sell exactly identical products, also known as hom*ogenous products. Due to this, firms have no control over the price of their products. Since it is impossible for consumers to distinguish the products produced by the different firms, branding and advertising is not important. In a perfect competition, there are no barriers to entry or exit, so it is easy for firms to enter the market when profits are gained or leave the market when money is lost.
The retail clothing industry is comprised of many small to medium firms, including H&M. H&M is a retail firm that sells clothing and accessories at a fair price (around $100 to $200). There are many other retail stores in the industry that sell similar but slightly differentiated products at a comparable price, such as Monki, Uniqlo, Zara and Gap. The differentiation is apparent in style, packaging, and design, meaning that the products sold by H&M are not hom*ogenous. Furthermore, H&M relies heavily on advertising, spending a large portion of their budget on commercials, leaflets, and public advertising, while a perfect competition does not. Also, H&M has a few barriers to entry, including costs for producing, advertising and employment. Due to these reasons, it is clear that H&M does not operate under a perfect competition.
Oligopoly
An oligopoly is an imperfect market structure that is made up of a few large firms that dominate the industry, meaning that there is only slight competition between the few firms, and that the decisions the firms choose to make can have an influence on the market. The types of goods that are sold by oligopolies vary in the level of difference, where some produce almost identical products, while others produce entirely differentiated products. Since there are only a small number of firms in an oligopoly, firms have a fair amount of control over the price of their products. Additionally, these firms rely heavily on the branding of their products, and there are a significant number of barriers to entry and exit.
H&M is a small to medium sized firm, and it is only one of the many firms operating within the clothing industry, meaning that there is large competition between the different firms. Due to brand loyalty, H&M does have slight control over the price of their products, but only to an extent. This is because of the many other firms that exist within the industry. If the firm decides to increase the price by a large amount, consumers can easily purchase substitutes from other firms. Also, H&M only has a few numbers of barriers to entry. Therefore, H&M does not operate in an oligopoly.
Monopoly
A monopoly is an imperfect market structure that is comprised of only one large firm selling a unique product, meaning that the firm has total control over the price of their product. Since only one firm is present, there is no competition for firms to gain superiority over others. However, advertising and branding is still important. While the product is unique and is only sold by one producer, consumers have the choice of whether or not to purchase the product, meaning that branding is needed to create consumer demand. Additionally, there are very high barriers to entry as high technology is needed.
Similar to a monopoly, H&M also relies heavily on advertising. However, the industry is comprised of many firms, in which most sell similar products that are slightly differentiated by design, style or packaging. This means that H&M only has slight control over the price of their product. Also, barriers to entry are not too high. Due to these reasons, H&M does not operate in a monopoly.
Monopolistic Competition
H&M operates in a monopolistic competition. This can be proved by the following evidence:
Size of industry
The retail clothing industry is made of a large number of well-branded retailers, many of which are international and have many branches located in various countries. H&M only makes up an extremely small portion of the entire retail clothing industry.
Size of firm
H&M is a medium sized firm, with 3500 stores operating in 57 countries, and a total of 132,000 employees working worldwide.
Barriers to Entry and Exit
H&M has a few barriers to entry and exit, including costs for producing, employment and packaging. Nothing major is required (such as high technology, high investments).
Advertising
Due to the large number of firms in the retail clothing industry, advertising is vital for H&M to gain consumer demand and superiority over other brands. H&M employs advertising and branding in magazines, leaflets, television commercials, and public advertisem*nts.
Competition
Because of the large number of firms in the industry, H&M faces many competitors, including Monki, Uniqlo, Zara, Gap etc. These firms all sell similar, but slightly differentiated products at comparable prices.
Product Differentiation
H&M is a retail clothing firm that sells products such as clothing and accessories. These types of products can be also found in its competitors. However, the products are slightly differentiated in the sense that they have different styles, designs, or colours. Nevertheless, the products are still quite similar in price and type, meaning that H&M only has slight control over the price of their products.
Brand Loyalty and Price Control
H&M employs major marketing and advertising strategies to build up the reputation of the brand. Products sold by H&M are also slightly differentiated from its competing firms. As a result, there is some extent of brand loyalty, where consumers are willing to purchase from the firm even if prices increase. Due to this brand loyalty, H&M has partial control over the price of their products.
