Question

Is the Sulfuric Acid market an oligopoly, monopolistic competition, or pure competition? How does Porter's Five Competitive Forces Model help you understand this market?

Answer 1

Sulfuric Acid is an oligopoly market. In it, only a few big firms are engaged in this global market. As for the few small firms, they are situated in certain regions only. There is also a high entry barrier in the form of production and transportation cost. The decision-making of one firm can have a substantial effect on other firms, for example, the pricing of sulfuric acid.

Porter's Five Competitive Forces Model

This model is a tool through which the competitiveness of the businesses inside the industry is analyzed.

It comprises of five forces that can pose a competition to the business.

• The threat of a new entrant
• The threat of substitution
• Bargaining power of suppliers
• Bargaining power of buyers
• Competitive rivals

To analyze the sulfuric acid as an oligopoly market, we will use Porter's Five Forces Model.

1. The threat of New Entrant

Here, there is a high barrier to entry. The new entrants have the difficulty of not being able to afford the production and transportation cost. As the economies of scale that offset the transportation cost are only to a small degree. So there is not much threat of a new entrant, it can be said that it is of medium degree.

2. Threat of Substitution

Substitution of sulfuric acid exist but they don't compete over the use of sulfuric acid in a variety of processes. For example, hydrochloric acid can be used as a substitute in the iron and steel pickling market but not in oil refining and fertilizer manufacturing. It can be high or medium considering the process it is being substituted for.

3. Bargaining power of suppliers

There are many key players in the sulfuric acid market so the bargaining power of suppliers is high.

4. Bargaining power of buyers

There are many different uses of sulfuric acid and the demand in these processes is high. So the number of consumers in this market is large. Thus this makes the bargaining power of buyers high.

5. competitive rivals

Competitive rivalry in this market is high as the few big firms are closely interlinked with each other. The action of one firm is dependent on the decision-making of other firms. And the strategies followed by them are also similar as they are focusing on the improvement of their technology.