Business Table of Contents Table of Contents 2 Perfect Competition 3 QuadPlex Cinema 4 Reference 6 Perfect Competition The market structure under perfect competition consists of a large number of buyers and sellers for a specified product or service. These sellers sell homogenous products in the market so differentiating the products of one company from that of another is difficult. They are price takers as there are numerous organizations producing the same product or service. They need to fix their price after going through the price of their competitors. If they raise the price of their products or service and their competitors do not raise the prices of their products or service then they would lose market share.
The customers have full information about the product or service in the market, thus the organizations have to accept the price that is prevalent in the market. In perfect competition there is not barrier to the entry and exit of organizations. An important feature of perfect competition is free entry and exit of firms. The prices of the products or service need to be fixed on the basis of market expectation. When an organization reduces its prices then other organizations follow otherwise they will lose market share.
In this scenario the profit percentage of an organization is not high. Profit is distributed among many sellers providing the same product. Carrying out research and development work requires huge amount of money but as their profit percentage is low, they cannot carry out research and development work. Bringing technological change also requires huge amount of capital. This type of change generally does not take place in case of perfect competition.
Technological change helps in reducing the time required for producing the product and reducing the cost of production. In such a situation if the technological change can help in reducing the existing prices of the products or services only then an organization needs to undertake this technological change (Machovec, 1995, p. 4). QuadPlex Cinema QuadPlex Cinema runs under monopoly market condition. In a monopoly market a single enterprise is the only supplier of the product in the market. It controls the market of the product. In a monopoly market there is no competition.
They are not price takers. QuadPlex Cinema holds a monopoly market in Idaho Falls. It is the only cinema hall in that area. It has been suffering losses in recent times. QuadPlex Cinema is planning to increase its prices in order to earn profit. This strategy is not strong enough for the enterprise in the long run. QuadPlex Cinema must highlight on various factors that would help in attracting more customers to the theatre. They are: - Conduct research in order to find out what kind of movies people of that area prefer to watch. Find out about the lifestyle of the people in that area.
This would help to fix the movie timings. Example-if majority of the people of that area go to work then it would be good to have night shifts in the theatre. The financial condition of the people of that area must be kept in mind before setting the prices. The standard of living of the people must be considered before providing additional services, like providing sofas and additional food items. QuadPlex Cinema can gain market power by following these steps.
Being the only cinema hall in that area, it has high potential. It needs to tap the potential customers by finding out their requirements. After the customers are satisfied with the service, then the theatre can raise their prices over the marginal cost. Immediately raising the prices will not bring any change in the current situation of the theatre. It needs to strategically plan in order to gain market power. The steps given will help it in long run to earn profit and gain market power. Reference Machovec, F. M., (1995).
Perfect Competition and the Transformation of Economics. London: Routledge