McDonalds

McDonalds: Market Structure

McDonalds Introduction: About McDonalds

McDonalds...is one of the chief international retailers for providing foodservice. There are more than 30,000 local restaurants which cater to 52 million people with world class fast-food in more than 100 countries every day. McDonalds chain is spread worldwide, with 30,000 local restaurants. 70 % restaurants of Mc Donalds are local and independent franchisee, own and operate globally. Among the most precious and renowned brands of the world, McDonalds is one. Approximately, on all the countries where McDonalds is operating its services, it gets hold of a major share in the global renowned quick service restaurant industry of the informal eat out market. Market Structure- Oligopoly The oligopoly market best characterizes the market in which McDonalds compete. There are many features of an oligopoly which differentiates it from other market structures. Product The product may be homogeneous or it may be heterogeneous. In this case, most of the products are heterogeneous; thus there exists a differentiated oligopoly. While, there also might be a pure oligopoly when the products are homogeneous, like the hamburgers, Wendys, Burger King all sell burgers. Competition All the firms in the industry are of different sizes and there is a cut throat competition in the industry. Here also, the competition is very intense and there are many players in the fast food service industry. In 1997, the revenues and the profits of its closest competitors were: McDonalds 6.8% 4.4% 8.7%

Burger King 4%

McDonalds Wendys 7.4% 16.3%

There are rivals like Burger King, Wendys, Subway, KFC, and Pizza Hut in the burger as well as fast-food segment. Price rigidity and price war Price rigidity and price war are the common features of the oligopolistic market situations. Product differentiation makes the possibility of price rigidity. It may be rigid under oligopolistic market. If a firm envisages a price cut, the other retaliates or responds to this change. For example, if Burger King reduces the prices of the burgers then Wendys may also cut down its prices or may add more features to its product or may employ some promotional methods to compete with other firms. Advertisement The main characteristic of oligopoly is advertisement. Under this kind of market structure, all the firms incur heavy costs on advertising expenses. To gain market share, the oligopolists resort to advertising. Indeterminateness of the Demand Curve The key characteristic of oligopolies is that the demand curve remains indeterminate because the mutual interdependence of the firms creates an atmosphere of uncertainty for all the firms in existence. No firm is in a position to visualize its price and output policy under this market situation as the demand curve is in indeterminate situation. It is because of interdependence among the rival oligopolists which further leads to the indeterminateness of the demand curve. Lack of uniformity

McDonalds

Another important characteristic of oligopolistic market structure is lack of uniformity in the size of firms. Some firms are big and the others are small. This is very common in capitalistic economies like the US. For example, Burger King, McDonalds, Wendys, Subway and other firms in the fast food industry, all are of different sizes and operate in different countries and on a different scale.

McDonalds References:1. Mathur N.D. (2001), Business Economics, Shivam Book house. 2. External and Internal Factors Affecting McDonalds Management, 2006. Retrieved on November 1, 2007 from http://www.freeonlineresearchpapers.com/external-internal-factors-affectingmcdonalds 3. McDonalds, (2005). Retrieved October 9, 2005, from McDonalds website:

http://www.mcdonlads.com/corp/values/diversity/supplierdiversity/commitment.h tml