Four Models of Competition and their Implications for Marketing Strategy

Figure 1: Market Structure by Number of Sellers 
and Type of Product 
Homogeneous Monopoly Homogeneous Perfect
 
Oligopoly Competition
 
Differentiated Monopoly Differentiated Monopolistic
 
Oligopoly Competition
 
In perfect competition, the market consists of such 
a large number of sellers of a homogeneous product that 
each has no perceptible influence on prices charged or 
quantities offered. Examples include Thai rice farmers 
and low price losman in Bali. By definition, strategic
 
4
 
competitive advantage cannot exist in perfect competi-
tion and further discussion is not possible. In pure 
monopolies, the market consists of a single seller (who 
may be highly regulated) of either a homogeneous or a 
differentiated product. Examples include Intel's 586 
chip and, until 1988, Indian Airlines. Pure monopolies 
possess ultimate competitive advantage (within 
regulatory limits) and can be viewed as ideals, to be 
sought through marketing strategy.
 
Many businesses operate as monopolistic com-
petitors, selling differentiated products in an industry 
comprising a large number of competitors. Again, the 
number of competitors is so large that the actions of any 
one have no perceptible influence on the market. Entry 
to the market is relatively easy and competitors act 
independently of each other. Examples include a 
Chinese manufacturer of stuffed toys and UMAX Data 
System, Inc. in Taiwan, a $ 40 million manufacturer of 
colour scanners.
 
Oligopolies contain just a few, relatively large com-
petitors who offer either homogeneous or differentiated 
products. Oligopolistic competitors know each other, 
can predict with some accuracy what each other will do, 
and can affect the market by their own actions. 
Economic theory holds that oligopolists often recognize 
their mutual self-interest and set prices almost as if 
colluding. The result—at least in the short-term—is the 
possibility of taking marketing actions that earn "mo-
nopolistic" profits while competitors scramble to catch 
up. A good example of an oligopolistic competitor is 
Johnson Electric Holdings, Ltd. in Hong Kong, the 
world's second largest maker of micromoters (hair 
dryers, electronic locks, etc.) behind Japan's Mabuchi 
Motor Co.