Types of market structures
There are four types of market structures in an economy: perfect competition, monopoly, oligopoly, and monopolistic competition. An oligopoly market structure has three main characteristics: few dominant sellers, differentiated or homogenous products, and difficulty entering the market (Myers & Tauber, 2011). The smartphone industry is an example of an Oligopoly market structure.
Comparison between different market structures
The smartphone industry is an oligopoly market structure comprising a large and profitable market, with few sellers holding a huge percentage of the market shares. In contrast, perfect competition comprises of a large number of sellers. Among dominant sellers is Apple, who uses the iOS, Samsung, and Huawei, who use Android. The small number of dominant sellers makes the smartphone industry an Oligopoly market. The sale of almost similar software and accessories by the leading players in this industry qualifies their product as homogeneous. The sale of similar phones and software qualifies the industry as an Oligopoly market.
When working within an Oligopoly market, the sellers must anticipate price and critical decisions from their competitors (Sutton, 2015). This the case in the smartphone industry when it comes to setting the cost of their products. In contrast to a monopoly market structure where the seller sets any price since he has market power. The barrier to enter the smartphone industry is high, making it difficult for new firms to venture into the market. The obstacles mainly include existing patents, customer loyalty for existing brands, and high cost to establish yourself (Von Stackelberg, 2014). These characteristics make the production of new phone brands an uphill task, leaving only a few firms with the available resources and technical ability to dominate the industry. This is in contrast to the Monopolistic Competition market, where there is the freedom to enter and exit the market(Sutton, 2015). The above characteristic makes the smartphone industry an Oligopoly market structure.
Market failure in the smartphone industry
The smartphone industry relies heavily on the advancement of technology in use. It makes the industry count on other .industries such as the software industry for its growth. The buyer expects that the next product in the market is an excellent improvement to the current model. It’s not usually the case as only minor improvement in battery life, camera, and processor power. There is pressure on the few dominant firms to meet consumer expectations if they have to buy the latest smartphone models, which cost a considerable amount of money.
New technological development by a different industry would increase production costs since the two sectors aim to profit. It is an expense that may drive away from the buyer of the product. The inability to embrace change in the industry by a significant shareholder can be too expensive. This may result to exit or considerable reduction of their market share and end up losing buyers to their competitors. It was the case when Nokia, who was dominant in the cellphone industry, we not able to move into the new smartphone industry. Any drop in the market can be a great set back to the principal shareholders in the industry. In turn, it affects their ability to advance or meet consumer presumption.
Conclusion
The Smartphone Industry would perform better in a monopolistic competition market structure that accounts for a significant number of sellers, due to the ease with which companies enter the market. New companies would bring new ideas that will speed up innovation, which adds to the industry’s success by meeting consumer demands. This, in return, creating more significant demand. A Monopolistic competition market structure would be the ideal form of market for the smartphone industry. It would generate elasticity of demand. For the seller to sell more, he must set a sensible price for his product.