Monopoly and Quasar Essay Example for Free

Monopoly and Quasar Essay In 2003, Quasar computers launched a revolutionary new laptop computer named the neutron. The neutron uses high speed optical conductors, which is the first technology of its kind to be used in a laptop. Over time many businesses need to evolve to stay competitive and continue to make a profit in the market place that they have entered. This paper will discuss how the Quasar computer company moved through the different market structures over the past ten years and how the pricing and non-pricing strategies affected the company’s growth. During their transition the company faced many obstacles that could have caused a detriment to their economic prosperity. We will also discuss some of the potential risks that the company may have faced and the negative consequences that they would have had to overcome in those situations. Last, we will explore the competition that Quasar faced as the transition from one market structure to another occurred and analyze the commercial policies that are intended to protect the computer industry. Quasar like most other companies found a short-term profitable product, but being able to adjust as competition enters the market is the key for Quasar to remain profitable. After the launch of the Neutron laptop computer Quasar enjoyed a pure monopoly market. A pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes (McConnell, Brue, 2004). During this time the company could set the pricing of the computer based on the demand for the newly innovative product. Because no other company produced the optical notebook the company was free to charge above market value for their product. But having a product in place will not bring up the sales. One of the strategies is to select an advertising budget to attract more customers to their product. The simulation showed that by slightly cutting the price and advertising the product the company could more than double their profits. Another strategy that the company was faced with was the improvement of the production processes. By upgrading, the company can optimize production while reducing the per-unit cost. This reduction means a lower price for the product which could bring in more customers and a higher profit. With the expiration of the patents once held by Quasar along with the increased demand for optical computers, other companies began to enter the market. This changed the market structure into an oligopolistic market. The difficulty in the oligopolistic market is the pricing strategy. The competitors need to reach a stable price where all make a reasonable profit. Because there are competitors fighting for market share and in the case of Quasar there is only one other fighting for market share, they both need to understand that pricing is the key. If the price is too high the demand for the product is lower if the price is cut severely, then the companies would have caused a slump in the industry. Even though they are both looking to get more market share the stability of the market is what will continue to bring the profits. As market share decreased due to competition, technology is now easily available, and new competitors entered the market. With low barriers to entry and ease of differentiation the market began to look like a monopolistic competition. In general, however, monopolistically competitive industries are much more competitive than they are monopolistic (McConnell, Brue, 2004). By having multiple variants in the market Quasar is faced with a decision of whether to promote the brand that has been the cornerstone of their business or introduce its own variant into the market. Quasar can invest money into research and development of their own variant that can remain competitive. By choosing to go that route, the company is able to be more profitable than if they were to advertise and promote the Neutron. As the years went by the monopolistic competition market finally became a perfect competition. A perfect competition market involves a very large number of firms producing a standardized product and allows new firms to enter or exit the industry very easily (McConnell-Brue, 2004). Unlike the other structures, the price of the product is determined by the market. In the short term a company such as Quasar can increase profits by using cost cutting measures. In pure competition a company has very little alternative to turn a profit. The quality and pricing of the product has stabilized and the products are similar to one another. A strategy that Quasar pursued was to invest in a company called Opticom which was a primary supplier of Optical Display Screens. By investing in Opticom and continuously improving much like the company did for the Neutron line, Quasar can turn a small profit before the industry catches up. During the transitions, Quasar was faced with many risks that need to be addressed to keep the company profitable. By performing a risk analysis we can determine if the course of action that the company pursued was correct. For example, when the company made the choice to introduce a variant into the market to remain competitive, the risk that the company took was tremendous. The money invested in research and development of a new product may not bring the expected result. If they had a far less superior product than the competitors or if the brand was improperly promoted, the outcome could have been disastrous. But by observing that they could use a twelve million of their unused production capacity they could lower the total cost of both the incumbent product as well as the new comer. Over the past several years the computer industry has grown exponentially with manufacturers like Dell, Apple and even Sony. Quasar has identified Japan as the country where they will face the greatest competition. Government procurement restrictions protect Japanese electronics and computer industries. These restrictions have recently been relaxed somewhat but they remain significant obstacles of trade (Unknown, 2004). These trade restrictions will hinder trade of Quasar’s products to Japan, but the company may be able to expand into the country and take advantage of the tax breaks while possibly distributing there product under a subsidiaries name. Many different businesses have had to evolve over their lifetime. Businesses that were once monopolies may end up on the other end of the spectrum depending on the ebb and flow of the market. The Quasar Computers scenario exhibited the evolution of a firm from one form of market structure to another. The company showed that during the life cycle of the product the company may have to pass through the different market structures as the product matures. The key to any company to remain profitable is to remain flexible. References McConnell, C, Brue, S. (2004). Economics principles. problems and policies [Adobe version]. University of Phoenix. (2002). Economics for Managerial Decision Making [Computer Software]. Retrieved from University of Phoenix, Simulation, ECOGM561 International Economics website. Unknown, . (1984). Japanese industrial policy. Retrieved from http://fraser. stlouisfed. org/publications/erp/page/5692/download/46305/5692_ERP. pdf.