Understanding a Business Through Hierarchies, Markets and Networks

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Figure 2: Short-run and long-run average costs of MRJA

The point “a” is the best position for the firm where the costs for both short-run and long-run is the lowest with suitable outputs.

Markets

After looking at the inside of the firm, it is also important to pay attention to the market where the firm is positioned. In general, market can be define as a medium where forces of demand and supply operates, and buyers and sellers interact to trade goods or services for money. (Online Business Dictionary, 2015). Market can be found in three different structures: perfect competition, monopoly and oligopoly.

Assumptions and outcomes of the three market structures

In 2015, Sloman, Wride and Garratt discuss three market structure with their assumptions and outcomes. In perfect competition, a lot of small firms are producing identical products. Thus there is no economy of scales in production and no firms can influence price. It is easy and free to enter or leave the market since the set-up costs are low or zero for the firms. The stakeholders can get perfect information about the firms and market in perfect competition and decision makers are rational. Thus, in the perfect competition, profits are quite low although competition promotes efficiency, social welfare and responsiveness of business to its stakeholders.

When the firm is in monopoly position, only one single firm is producing a specific product and there is no close substitute. It is difficult to enter into the market due to substantial barriers which include trade secrets, absolute cost advantage, consumer loyalty, large, capital requirements, etc. Decision makers are rational and do not have perfect information. Hence, monopolized firms are inefficient as they produce where unit costs are higher than the minimum. However, they could raise output and sell to people who want to buy and still make profit from the deal.

When a large proportion of the market is taken up by a few firms, these firms are oligopolies. The two key features that distinguish oligopoly from the above two market structures are: existence of various barriers to the entry of the new firms and interdependent of the firms. The size of the barriers are varies from industry to industry; some are relatively easy and virtually impossible. Since the firms are mutually dependent, each firm is affected by its rivals’ action. Hence, no firm can afford to ignore the actions and reactions of the other firms in the industry.

Explaining MRJA’s oligopoly market structure with Porter’s five forces

The MRJA Jewellery is in the oligopolies position where few jewellery firms take the jewellery industry and competing in the market. MRJA has to maintain its product price by compering to the other rivalry firms because the customers will easily make substitution due to the presence of many choices.

Since MRJA is in oligopoly market, competitive rivalry amongst existing firms is high. In jewellery industry, companies that are considered mass merchandisers or limited line jewellers generally compete on price. However, specialty jewellery companies, including MRJA which produce customised products, have a great success in competing on product quality rather than competing on price since brand recognition is the greatest asset for the firms in oligopolies. In 2012, MRJA expands to China which lower the switching costs and degrees of differentiation. Hence, these low degree of differentiation leads consumers to buy products based on price rather than quality of product. Nevertheless, MRJA is recently opening new stores internationally in order to increase market share and capitalize on competition.

In jewellery industry, the threat of new entrance to the market runs between moderate to low because several of the existing firms, including MARJA, have already have contract with well-known gemstone and jade distributing companies. And the entry is relatively hard for the new firms due to the growth of the companies already established in the industry and due to the high level of initial costs as the price of precious gemstones and jade are really expensive. The existing firms experience economies of scale from large investments in research and development, brand advertising, or in physical location of stores. This large economies of scale make it very difficult for new entrants to compete in an industry.

Moreover, the threat of substitute products for MRJA is undoubtedly high. Apart from the loyal customers, the customers’ willingness to consider substitutes is directly proportional to the relative price and performance of the competitors’ products. In addition, the growth in fancy fashion accessories among young people has also become the substitution threat factor for MRJA. The MRJA has to make both up-to-date or innovative and classy product designs for the changing tastes in consumers. Substitute products also affects the elasticity of MRJA products price. Since customers have more alternative choices, the ability of the company to raise prices is constrained and the demand becomes more elastic.

The bargaining power of customers is moderate in oligopoly market. When the company has a large numbers of buyers, especially in jewellery exhibitions and wedding season in Myanmar, MRJA has the ability to set its price points as high or as low as the company choose. Apart from these special events, MRJA collude the price with other jewellery companies and sell gems and jewelleries at same price.

Last but not least, the bargaining power of suppliers is relatively high. Since jade and other precious gemstones are scarce, mining companies have absolute control over the selling price. Mining company such as Htoo, which is based in middle region of Myanmar, controls the price of the jade and gemstones that are supplied to several firms in the jewellery industry. Since these precious gems are great value to the firms, the power of the supplier is even larger. Additionally, the power of suppliers within the jewellery gets even higher within the last few year in Myanmar due to natural gemstone scarcity.

Market Demand and Supply of MRJA

Generally, both demand and supply is determined by the price factor. It is the universal truth that when the price of a good rises, the quantity demanded will fall and the quantity supplied will rise. This applies to both individual firm and the whole market.

Also for MRJA, when the prices of gemstones and jewellery increase in the