In economics, market structures refer to the manner of organizations or the characteristics of a certain market. This often relates to the nature of pricing and competition in such a market. These aspects form the interconnected attributes of a market in terms of the capabilities of the sellers and the buyers, the collusion level among the players, the manner of product differentiation, ease of entry, and how the players exit those markets (Goldberg, 2000, p. 158). This is a structure in which companies have several competitors and, at the same time, sell slightly differentiated products (Business Dictionary, 2012). Virgin Atlantic fits in this market since its competitors are British Airways, British Midland, Iberia, and other international airlines. In microeconomics, we focus on four types of market structure; these include perfect competition, oligopoly, monopoly, and monopolistic competition.
The airline industry fits in the monopolistic competition form of market structure. Virgin Atlantic will fit in the case of a monopolistic market structure. This relates to the general characteristics of the airline industry. For instance, the barriers to entry in this market structure are few. The fact that Virgin Atlantic has developed over the years is a result of the few restrictions that have been reduced in the past decade to accommodate private companies in the market, which was earlier deemed to be solely monopolistic. Over the past years, the airline industry has changed to accommodate new kinds of airlines. This includes the low-cost carriers that exist in different markets across the world. The speed with which this change has occurred over the past twenty years is a clear demonstration of the fact that the barriers in this industry are few.
The types of products under monopolistic competition are differentiated and branded. Virgin Atlantic is a highly recognizable brand across the United Kingdom and all over the globe. The fact that Virgin Atlantic is a private brand means that it fits in this market framework. In addition, product differentiation in this market creates diversity, ensures that sellers have a choice, and enhances utility. There are different airlines people can choose from in this market. For instance, in the UK, people may choose between Virgin Atlantic, British Airways, and Iberia. These are not the only airlines that operate in the UK. Other international airlines also provide their services in the UK, thus increasing the number of companies in this industry. As a result, this explains why Virgin Atlantic fits in the monopolistic market structure. Companies in the airline industry engage in monopolistic competition and invest more in product development and heavy marketing to differentiate themselves from other players. For instance, the symbol of the BA brand is quite different from the Virgin Atlantic brand. Thus, such differentiation efforts by the companies aim at ensuring that they gain enough monopolistic pricing power. However, this often increases advertising and marketing costs.
Eventually, the consumers will end up covering these costs by paying higher prices. For instance, Virgin Atlantic raised complaints that British Airways engaged in anticompetitive pricing by providing travel agencies and other corporate customers with incentives to increase the number of tickets that BA sold. This is a competitive move aimed at ensuring that the company enhances competitiveness.
The differentiation of products can take the form of physical product differentiation by designing unique sizes, colors, shapes, features, and performances. Thus, the logo colors of the airlines are different. This makes it easier for consumers to differentiate the companies (Economics Online, n.d). In addition, the companies use market differentiation as they focus on differentiating their products with distinctive packaging and other promotional techniques. The services offered by Virgin Atlantic differ from those offered by British Airways to attract more customers. In addition, human differentiation in Virgin Atlantic comes in the form of the skills of their employees and the distinctive uniform for their crews. Virgin Atlantic also uses distribution as a form of differentiation by expanding to other countries to enhance its competitiveness globally.
Virgin Atlantic fits in the framework of monopolistic competition because it is a price maker. The prices for airline services are different because each company is in power to influence them. This is because the company offers unique services and it can charge high or low prices for the services it offers. Virgin Atlantic sets its prices; it does not use the prices that the industry sets. This means that the demand curves for the company will slope downwards.
Virgin Atlantic, just like other companies in the monopolistic markets, is a profit maximizer; it is the entrepreneur who is active in business management (Economics Online, n.d). For instance, Richard Branson plays a key role in the management of the airlines.
The spread of knowledge in the industry expands between customers; they usually review the price policies of all airlines before they make any choices regarding which company to use (Economics Online, n.d). In addition, the consumers review the company’s products after receiving service from the company. This explains why different customers shift preferences from one airline to another.
The firms in the airline industry are few, and this makes the market contestable. This is clear since the barriers to entering this market remain limited. In conclusion, Virgin Atlantic falls within the purview of monopolistic competition.
Our Affiliate Program
Earn 10% of all orders made by people you refer. Your referred people also get a 17% DISCOUNT on their first order. Help your friends by letting them know about our services!Read more
Remind your friends as often as you can
They place more orders
You earn more