This paper examines McDonald's market structure, arguing that the company functions as a dominant player within an oligopolistic fast food burger industry. The paper outlines McDonald's global scale — over 32,000 locations in more than 110 countries — and explains the defining characteristics of an oligopoly, including high barriers to entry, price interdependence, and market concentration. It then analyzes two core competitive strategies McDonald's has employed since 2003: menu diversification and a focus on increasing revenue at existing restaurants rather than expanding new locations. The paper concludes that McDonald's continued adaptability positions it to shape industry behavior and maintain its leadership over competitors such as Burger King.
The paper demonstrates applied economic analysis: taking a formal market structure concept from microeconomics and using it as a lens to interpret a real company's competitive behavior and pricing dynamics. This technique requires both accurate definition of the economic model and credible evidence that the real-world case matches its criteria.
The paper opens with a factual overview of McDonald's global scale and franchise model. It then defines and explains oligopoly as a market structure, applying it directly to the fast food burger segment with supporting market share data. The third section identifies two specific strategies McDonald's has used to strengthen its oligopolistic position. A brief conclusion synthesizes the argument and projects continued dominance. The structure follows a classic define–apply–evaluate pattern suitable for an introductory economics or business course.
McDonald's is one of the most recognizable brands in the world. It is the world's largest food chain, with more than 32,000 locations in more than 110 countries. Operating its own brand, McDonald's also franchises to local business owners; approximately 70% of McDonald's restaurants are franchised. As of 2009, 80% of McDonald's restaurants were franchised businesses, with the remaining 20% being company-operated. McDonald's serves more than 47 million customers on a daily basis and employs upwards of 1.5 million people (McDonald's, 2010).
The chain has adapted to regional cultures 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). This cultural flexibility has been central to McDonald's ability to maintain relevance and market share across highly diverse consumer bases.
McDonald's functions as an oligopoly in the burger-focused fast food franchise industry. An oligopoly occurs when a small number of firms dominate a market. For example, in the Spanish market, burger restaurants comprise 30.91% of the overall fast food market (Pietersz, 2011). Of that 30.91%, McDonald's and Burger King together hold 94% of the burger segment ("Fast Food Market Share," 2011).
In an oligopolistic market, a small number of suppliers dominate, resulting in a high degree of market concentration — that is, a large portion of the market is controlled by a few leading firms. High barriers to entry are characteristic of oligopolistic markets and often lead to a lack of price competition, as the firms involved are acutely aware of their competitors' actions and pricing strategies. When one firm cuts prices, the market tends to follow. There is therefore little incentive for firms in an oligopoly to alter their prices independently. On occasion, an oligopolistic business will cut prices if there is an opportunity to gain market share; conversely, a firm will raise prices only when confident that competitors will follow (Pietersz, 2011). As a result, prices within an oligopoly "tend to be higher and change less than under perfect competition" (Pietersz, 2011).
Provided McDonald's continues to utilize its resources and expand its burger empire, it is likely to help dictate the behavior of fast food franchises and shape the broader fast food burger industry. By setting the standard within its oligopolistic sector, McDonald's has seen continued increases in sales and popularity, with Burger King trailing behind. The company will continue to prosper as long as it studies the market and adapts to consumer demand.
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