Market structure is a microeconomics term that encompasses the interconnected attributes of a market. The variables examined when considering market structure include characteristics of buyers and sellers, competition, product differentiation, and ease of moving into and from the market. Factors such as the number and strength of buyers and sellers, along with any collusion that may develop among them, are very influential on market structure, as evident in this discussion. An analysis of the competition will consider the occurrence and degree of product differentiation that is occurring. Finally, two important attributes of market structure are the ease of entry and exit from the existing market.
Traditionally, four fundamental market structure types are recognized: 1) Perfect competition, in which many buyers and sellers engage without being able to control prices; 2) Oligopoly, in which a number of large sellers have established some control over prices; 3) Monopoly, in which a single seller maintains near absolute control over supply and, therefore, over prices; and 4) Monopsony, in which a single buy exercises considerable control over demand and, as a result, over prices.
Assessing Market Structure Effectiveness
The strongest competitive forces are the drivers of profitability for a market; hence these competitive forces are key to an effective analysis and to the formulation of market strategy. It is critical to recognize that the most relevant competitive forces are not always salient, which means that conducting an assessment of market structure effectiveness for the operations of a particular company is a complex endeavor.
The most likely market structure in with this low-calorie food company operates is perfect competition at the niche level and oligopoly for large food manufacturing companies that have acquired other brands and businesses. It is helpful to consider that new low-calorie foods may be introduced to the market as niche products, but robust launches that result in a strong consumer following typically develop into entire product lines.
Two leading competitors in the low-calorie microwavable food industry are Lean Cuisine and Healthy Choice. Lean Cuisine has a 20.7% of the market share of the single-serve frozen dinner market, with Healthy Choices (Con Agra) holding a 10.8% share (Newman, 2012). Other competitors are Weight Watchers Smart Ones (Heinz Frozen Foods) with an 11. 4% share (Newman, 2012). Over the 52-week period in which SymphonyIRI Group was measuring activity, the market data showed market share increasing by 10.2 points for Smart Ones, dipping by 1.0 point for Lean Cuisine, and dropping by 0.2 points for Healthy Choice (Newman, 2012).
Factors Influencing Changes in Market Structure for the Food Industry
The food industry, along with any number of other industries considered today, has experienced substantive pressure for takeover activity (Weston and Chui, 1996). Two primary objectives of these takeovers are augmenting existing product lines and expanding the geographic reach of brands, typically into international markets. Acquisition is an effective approach for companies that have sufficient brand strength and robust resources. On the flip side, successful companies attract takeover activity from companies that are looking to balance brand portfolios or expand into a growing product market. Historically, the market has reacted positively to divestitures of noncore activities and positively to acquisition in related core activities. However, there is evidence the trend may not be continuing in the present market context.
Westen and Chui (1996) argued that growth in the food industry is achieved by introducing new products to the market at a high rate. The ease of entry and exit of an industry is strong test of competitiveness. While companies can easily enter niche areas of the food industry, any forays into a broad processing effort with full production and distribution are a long-term endeavor. Exits in the food industry occur at a vigorous rate as consumer tastes fluctuate in concert with a steady flow of reports on healthy eating and contaminated food supplies. Moreover, the influence of social media and the digital flow of information continue to trend high with respect to lifestyle-referenced consumer behavior.
Production and Cost Functions of Low-Calorie Microwaveable Foods
The challenge to the low-calorie, microwaveable food manufacturing companies is to determine how to choose the constellation of inputs that minimize the cost of producing the food products. This cost-minimization challenge has different facets depending on whether the period is for short-run or…