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Introduction

Introduction Monopolistically competitive markets can be characterised as having few barriers to entry and exit, producers influencing market prices with no firm having control over the market price, and brand loyalty that allows companies to increase prices without losing all customers (Anold, 2010). A connection between brand loyalty, price competition and market entry barriers could be illustrated with an example of the monopolistically competitive MP3 player market. Technology standards and popularisation of MP3 players have already been completed. Taking the lead in compatibility with various contents, extension of devices related to product design and MP3 players based on high-tech function, miniaturisation and mass storage are the main factors dominating the market. With regard to the compatibility of devices with various contents related to MP3 players, companies are executing joining hands strategies. Accordingly, the most important is the issue of design that is based on miniaturisation, mass storage and high-tech functions (Electronic parts institute, 2006). The total annual market value of portable music players is almost � 500 million (Mintel 2005). According to the recent In-Stat report, the Hard Disk Drive (HDD)-based and Flash-based players market should grow from 140 million units in 2005 to 286 million units in 2010 (In-Stat, 2006). ...read more.

Middle

Consequently, potential new entrants are open to use any available technology. Hence, if competitors could create an MP3 player, they are welcome to try and sell their products on the relatively open market. Furthermore, companies could examine economies of scale that should lead to constant minimisation of product costs. This could be a significant barrier for new entrants. Therefore, for a new entrant the first start up costs are high, but not impossible (Barney, 2008). One of the ways to raise the profit margin is to charge a higher price to consumers. However, companies could only be successful when their products have a perceived value for customers. Overall, the static analysis of Bain suggested three types of barriers: economies of scale, absolute cost advantages and product differentiation (Bain, 1956). In contrast, Stigler suggested that "a cost of production must be borne by a firm which seeks to enter an industry, but not by firms already in the industry" (Stigler, 1968). Currently, Apple had contracted with Samsung, the first flash memory creator, to buy 40% of Samsung's flash memory production (Apple, 2010). As a result, Apple had a considerably low price on this important element of an MP3 player. ...read more.

Conclusion

Even though there are numerous competitors in the online music store market such as Virgin and MSN Music, to name a few, Apple managed to retain its market leadership. As a result, the iTunes Music Store has almost 80% of the market share (Robert Semple, 2007). Finally, Apple offered the first real solution to buy music online, partly owing to its success in signing contractors with the five majors record labels (Apple, 2006). This allowed Apple to have a significant catalogue of songs. In addition, Apple permits consumers to copy songs on a MP3 player and also to burn CDs. These actions force consumers to actually acquire songs online and pay for them. Conclusion The influence of the market competition on barriers to entry, price competition and brand loyalty was described with an example of the monopolistically competitive MP3 player industry. Furthermore, it was evidently recognised that medium barriers to entry, considerable profits and relatively fast growth of the MP3 player market attracted various new market entrants that managed to enter this market with no significant efforts owing to a large number of differentiated products. This led to a constant decrease of an average market price of a MP3 player. Consequently, MP3 players became more affordable to consumers. As a result, sales of MP3 players are projected to grow even further attributable to enhanced technology and falling prices. ...read more.

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