A market structure is defined as an industry’s characteristics concerning the number of businesses in that industry and how they compete amongst each other (Hubbard & Garnett, 2012). The four market structures are perfect competition, monopolistic competition, oligopoly, and monopoly (Hubbard & Garnett, 2012).
Porter (Grundy, 2006) identified five forces that make up the competitive environment, and which can erode the profitability of a business. The five forces identified by Porter are competitive rivalry, supplier power, buyer power, the threat of substitution, and the threat of new entry.
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The first group includes the accommodation industry players like Hilton, Marriott-Bonvoy, InterContinental Hotel Group, among others. It is a monopolistic competitive industry because of the presence of many players with few barriers to entry (Grundy, 2006). Customers tend to be stuck to brand loyalty, and product offerings are differentiated (Grundy, 2006). In this industry, the demand curve is downward sloping because orgnizations can charge their loyal customers a higher price.
Group 2 has Verizon, AT & T, T-Mobile among others. It is an oligopolistic market dominated by a few companies because the barriers to entry are high. There is little or no price competition because if a company raises a product price, it will experience reduced sales as competitors might decide to offer substitute products at a lower price (Grundy, 2006). If companies, however, choose to lower prices, their competitors are likely to do the same, leading to a price war. In turn, this might lead to a reduction in profits. Companies will tend to focus more on product innovation, better distribution chain management, and value addition to stay ahead of the competition and maximize their earnings (Grundy, 2006).
Using Porter’s Five Forces principle, Group 2 is the best investment option because the profits are almost guaranteed due to the high barriers to entry, while the threat of new entrants and competitive rivalry is minimal (Grundy, 2006).
References
Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change , 15 (5), 213-229.
Hubbard, G., & Garnett, A. (2012). Essentials of Economics . Pearson Australia Pty Ltd.
