Market Structure – Quasar Computer ECO/GM 561 June 27, 2011 Instructor: Rodolfo Rivas In economics, a market structure is made up of industries producing identical products. This paper will introduce solutions using strategic variables available to sustain the economic profits that Quasar computers can make. The paper will momentarily explain the different market structures and also discuss some of the pricing and non pricing strategies as well as the kind of innovations that would be proposed to sustain the organization’s uniqueness.
Market structures have been grouped into four distinct types: pure monopoly, pure competition, monopolistic competition, and oligopoly (McConnell & Brue, 2005 p. 413). Accepting the diverse market structures is important to assist in comprehension in what ways prices and output are regulated. These ultimately assist to calculate the efficiency or inefficiency of those markets. Quasar computers lunched the world’s first all-optical notebook computer in 2003 called Neutron.
It is imperative that Quasar computers implement the best price strategies for the notebook with a view of maximizing its profit while enjoying a pure monopoly “market structure in which one firm is the sole seller of a product or service” (McConnell & Brue, 2005 p. 413). From observing the impact of price on demand, revenues, and profit through the pricing tool in the simulation, the price strategy to implement would be to set the price at the point where the marginal cost equals to the marginal revenue.
Setting the price at $2550 per notebook will create a position for the marginal cost to be equals to the marginal revenue and ultimately resulting in maximum profits for Quasar Computers. The entry of Orion Technologies in 2006 into the optical notebook market with a similar product resulted into Quasar Computers in an oligopolistic market which “involves only a few sellers of a standardized or differentiated product” (McConnell & Brue, 2005 p. 414).
In this type of market structure, decisions made by each company are influenced by the decisions made by the other in terms of the quality of the product, market share, revenue, profits and, determination of prices. “The market for optical notebooks has grown but Orion Technologies has captured 50% of the market” (UOP, 2011). The strategy was to reduce the price of the neutron to observe how the competitor reacts to the market. Reducing the price to $2000 created an increase in profits for Quasar Computers. Further decrease in price to $1850 resulted in more profits for the company.
The key here is to understand Orion Technologies’ reaction to Quasar Computers’ prices and adjusting the price strategy to obtain the optimum profit. Optical notebooks entering into the mid-point of the product life cycle of the market in 2010 and people are not only purchasing them for just business use but also for personal use as well. Quasar computers find itself in a monopolistic competition which “is characterized by a relatively large number of sellers producing differentiated products” This will cause a decrease in market share and a non-pricing strategy needs to be introduced.
The introduction of a non pricing strategy will allow Quasar computers to potentially increase sale and expand the market share without any involvement of change in the price of the notebook. Increasing the advertising expenditure will be an effective non pricing strategy to increase the market share which will result in an increase in profit over time. Selling the notebook at the same price with $600 million investment in advertisement using the stimulation tool produced a tremendous increase in profit and even more profit when the price of the notebook was reduced by $100.
Innovation of an existing product instead of creating a new product may be the best way to go as it saves time and cost less when the market is slow or the product is struggling because of a competitive market. Branding will be strongly recommended for Quasar Computers. Investing in a new model of the optical notebook computer and keeping the neutron model the same. Quasar’s ability to offer different models of the optical computer provides the opportunity to introduce its own variant in the market.
As the new brand competes with other brands in the market the overall market share of Quasar increases. References McConnell, C. R. & Brue, S. L.. (2005). Economics: Principles, problems, and policies. New York: McGraw Hill/Irwin. Economics for Managerial Decision Making, (2011). University of Phoenix: Market Structure Simulation. Retrieved on July 24, 2011 from https://ecampus. phoenix. edu/secure/aapd/vendors/tata/sims/economics/market/economics_market_frame. html