Mcdonald\'s Market Structure Mcdonald\'s (2010) Is One

McDonald's Market Structure

McDonald's (2010) is one of the most recognizable brands around the world. It is the world's largest food chain and has more than 32,000 locations in more than 110 countries. Operating it's own brand, McDonald's franchises its brand to local business people; approximately 70% of McDonald's restaurants are franchised. As of 2009, 80% of McDonald's restaurants were franchised business with the remaining 20% being were company-operated. McDonald's serves more than 47 million customers on a daily basis and employs upwards of 1.5 million people. The chain has adapted to cultural regions and offers items such as the Teriyaki Mac in Japan, substitutes lamb for beef in India, and offers variants of the Filet-O-Fish in China ("Fast Food Market Share," 2011).

McDonald's functions as an oligopoly in the burger themed fast food franchise industry. An oligopoly occurs when few firms dominate the market. For example, in the Spanish market, burger restaurants comprise 30.91% of the market (Pietersz, 2011). Of those 30.91%, McDonald's and Burger King hold 94% of the burger market ("Fast Food Market Share," 2011). In an oligopolistic market, few suppliers will dominate the market and results in a "high degree of market concentration." In other words, a large portion of the market is controlled by a few leading firms. High barriers of entry are present in an oligopolistic market and often lead to a lack of price competition as the firms comprising the oligopolistic market are aware of their competitors' actions and pricing strategies. When price cuts occur within the market, the market tends to follow suit. There is little incentive for an oligopolistic market to change its prices. On occasion, an oligopolistic business will cut its prices if there is an opportunity increase market share gains; inversely, an oligopolistic business will increase prices if they are sure that their competitors will follow (Pietersz, 2011). Because of this, prices within an oligopoly will "tend to be higher and change less than under perfect competition" (Pietersz, 2011).

McDonald's utilizes many of its company-owned restaurants as a testing ground for new marketing, product, and placement strategies. McDonald's utilizes these strategies as a "training ground for corporate personnel and an important element in maintaining its status as a credible franchiser" ("McDonald's (MCD)"). McDonald's has also implemented two distinct strategies since 2003 that have enabled it to compete more efficiently and successfully within its oligopolistic market. McDonald's has introduced new food items such as Premium Chicken sandwiches, Angus Beef burgers, as well as, health conscious food items like their Premium salads and oatmeal. Additionally, McDonald's has begun to offer premium coffee drinks and frappes at many of their locations. The second strategy employed by McDonald's is to focus their efforts on increasing sales at their existing restaurants instead of opening up new ones ("McDonald's (MCD)"). In order to accomplish this, they have renovated and remodeled existing restaurants, extended business hours, and increased menu options. According to analysts, it is estimated that by the end of 2010, McDonald's will see an estimated 11.5% profit increase from 2009 ("McDonalds (NYSE:MCD) report: Market share, margins on the rise").