Understanding the Behaviour of Organisations in their Market Essay

Understanding the Behaviour of Organisations in their Market Environment - Essay Example In general, there are four basic types of market structure, namely perfect competition, monopoly, monopolistic competition and oligopoly. Perfect Competition: Perfect competition is a situation when numerous firms are competing in the market (Machovec, 2002). For example, FMCG and FMCD sectors are perfectly competitive ones. The biggest advantage of a perfectly competitive market is that firms produce optimal output levels at a low cost. However, the biggest disadvantage is that companies earn minimal profit and there are no economies of scale. Monopoly: A monopoly is a market situation where only firm is operating and there are no competitors (Lele, 2006). For example, the local water electricity service providers are often considered to be operating in a monopoly market. The advantages of monopoly are no risk of overproduction, efficient use of resources, price leader, focuses on the production of a particular product or service. The labour cost is also low. On the other hand, the disadvantages of a monopoly market are that the company can exploit customers by charging more or offering low quality products. There is huge restriction in choice of customers resulting in a low buyer power. Furthermore, the absence of competition often leads to inefficiency and lower productivity. Monopolistic Competition: A monopolistic competition in an industry is characterised by the presence of several competitors, but their offerings differ (Solow, 1998). The restaurant industry is the best example of monopolistic competition. One of th e biggest advantages of monopolistic competition is that it promotes competition which, in turn, greatly helps in enhancing the efficiency and productivity of the industry. From the point of view of consumers, it offers them greater choice and variety. Moreover, customers get quality products and services and turn out to be more knowledgeable about the product features. Technological innovation and research and development are highly visible. The disadvantages of monopolistic competition are that it leads to higher price. Oligopoly: An oligopoly market is characterised by the presence of only a few firms (Tucker, 2008). For example, gas service providers are considered to be operating in the oligopoly market. The biggest advantage is that prices remain fixed and competition is high resulting in a higher efficiency. On the other hand, the disadvantage is that there are less research and development works and less innovation. Figure 1 – Market Structure PESTLE and Cultural Envi ronment The external business environment in which an organisation operates plays a significant role. Before formulating a business plan or formulating a strategy for business, organisations carry out in-depth analysis of the business environment. The external business environment includes the political, legal, social, technological, environmental, demographic, economical and cultural factors. Nowadays, business houses operate in a changing business environment and as a result, they are required to offer products and services that match with the needs of customers. According to Taloo (2007), there are no businesses in the world that can survive without having any interaction with the external business environment. The factors of the external business environment have a strong influence on the business operations and therefore, businesses need to be aware of the external environment. For example, a change in the economic environment of a country can strongly impact the sales of a com pany. Therefore, organisations are