Sony Corporation as an oligopolistic market structure

Introduction

In the Economic Education journal (2009, Oligopoly has been defined as “a game of quantity competition in which firms' products are perfect substitutes”. This is the case when Individuals companies merely choose how much output to produce, and the market price is a negative function of total production in the industry. Oligopoly can also refer to a market structure “containing a small number of relatively large firms” which impose considerable number of “barriers to entry of other firms” (Meister 1968).Oligopolies has been in existence for the same period as commerce. In commerce, the members of an oligopoly alter the nature of a free market.  While they can't dictate price and availability like a monopoly can, they often turn into friendly competitors, since it is in all the members' interest to maintain a stable market and profitable prices.

Oligopoly watch defines new oligopoly as oligopoly that is “ made up of multinational corporations that have chosen specific product or service categories to dominate”  and that overtime “only two to four major players prosper” in each of the categories ( Oligopoly Watch). This kind of market has in the past made startup companies hard to market to join the “market segment is “and those who succeed are “often gobbled up or run out of business by the oligopolies” (Oligopoly Watch).

Nature of oligopolistic market structure

Oligopoly market is characterized by an “industry dominated by a small number of large firms”, companies that “sell either identical or differentiated products” and industry that has got “significant barriers to entry” (Amos Web). These named features underlie usual oligopolistic behavior that also bears interdependent actions and decision making, the interest of non-price competition instead than price competition, tendency to keep prices rigid the inclination for firms to unite, and the inducement to form collusive systems. A notable feature of oligopoly is an industry predominated by a small number of large business firm, where each firm is relatively large as compared to the whole size of the market. This feature contributes to substantial market control each of the relatively large firms while at the same time each business firm does not wield as much market control as a monopoly. The total number of firms in an oligopolistic industry is not the key consideration (Meister 1968).

Sony Corp. as an oligopolistic firm

Sony Corporation founded in 1946 is one of the world noted  electronics business unit as well as the parent company of the Sony Group, which is engaged in business via its five operating sections – entertainment, electronics, financial service, games, and other (Sony). Sony Corporation can be considered as an oligopolistic firm as the corporation production units are considerably higher than those of other firm in the named industry.  This is evidenced by Sony sales totaling to 8.9 and 7.7 trillion Yens for the year 2008 and 2009 respectively (Sony annual Report). The other top firms have similarly produced high volumes of sales.

Sony is a perfect example of differentiate Product Oligopoly as Sony focuses in the development of goods sold for personal consumption. In this regard, Sony is known for producing laptops, disc mans, play station, storage media and other wares meant for personal use. This approach is due to the belief that individuals have different desires and needs and therefore enjoy availability of varieties.

Oligopolistic firms like Sony possess barriers that deny entry of other firms to the industry. Sony has achieved this through of exclusive resource ownership, patents and copyrights.  Sony technology and products are protected from infringement by International laws. This therefore denies small firms possibility of reproducing similar products and services as Sony. This has enabled Sony to attain and retain the market for its wide array of good and technology and has therefore emerged as a competitive firm in the industry. Sony’s move to patent it goods and technology is a sure way of diminishing market control of any given firm within the same industry like Sony. This has therefore lead to emergence of Sony as a truly ogopolistic firm.

Ogopolistic companies are in many times experience in their industry due to long periods of existence. Sony Corporation is an example with about 64 years of existence. Sony’s brand names are well known coupled with its establishment of state-of-the-art manufacturing plants that supply economies through production of large volumes of production. New firms venturing into the industry are therefore face with challenged of competing with well-established business systems such as that of Sony. This usually calls for the use a substantial sum of expensive upfront promotion and advertising. New firms also face challenges as they enter the industry as they have to setting up factories and business premises. As a result new firms are likely to not perform well due to the presence of well established firms like Sony.

Sony has over years devised unique and own production techniques that are compete with the patented techniques and as a result have an advantage of decreasing short-run average cost or long-run economies of scale. New entry firms lack this ability and are therefore disadvantaged as compared to Sony; an ogopolistic firm in the industry.

Sony’s market share

Sony has for a long time held substantial percentage of market on different lines of products. For instance in the year 2009, estimates by Sony revealed that Sony Music Entertainment held 27.5 % compared to Universal studios that held 31.2 %  in the United States. However, Sony is a well know brand and commands a considerable market share (Yamamura 1966). Sony Music Entertainment is however leading with a higher market share compared to the other competitors.

SME Japan Market share (August 2008-April 2009) Source[1]

Nature of competition

Oligopolistic firms face a downward inclining demand curve but the elasticity may depend upon the reaction of competitors to alterations in price and output. The is exemplified by an assumption that if a firms attempts to hold a high level of profits and their market share, their rivals may not follow the price increase by the firm and thus the demand will be relatively elastic and an increase in price would contribute to a decrease in the  total revenue of the firm. The competitors may also match price fall by the other firm in order to avoid a losing market share. If such a case takes place, demand will be more inelastic and a fall in price will also lead to a fall in total revenue. This implies that there will be price viscosity in such markets and thus firms will depend more on non-price competition to boost sales, revenue and profits.

Barriers of entry to the market

In an ogopolistic market structure, new firms do face barriers that limit the ability and capacity to compete with the well-grounded firms. Availability of resources and technology always face block off new firms. Such firms may lack limited funds to set up plants as well as perform advertisement. The challenge of developing or acquiring technology also prevents entry of new firms to an ogopolistic industry.  

Conclusion

Today, companies such as Sony are considered to be ogopolistic as it is large, has a large market share and is focused on the production of goods for personal consumptions. Presence of Sony in the industry has placed barriers to other small firms through ownership and patents. In such a market, sales can be increased not through price wars but through non price competition.

Order now

Related essays