Question

what business we can relate to and come up with a news presentation on firms in competitive markets

Answer 1

In the  years, a growing number of business practitioners and theorists have postulated that one way for a company to increase its return is by increasing its market share, and studies appear to have confirmed this relationship. But the authors of this article refuse to accept the blanket inference that “more” is necessarily always going to mean “better.” A large market share, they point out, can spell more trouble as well as more profit for a company; a given project promising higher returns than others will surely entail greater risks as well. Given this direct link between profit and risk, it behooves companies to manage their market shares with the same diligence as they would manage any other facet of their businesses. This concept of managing market shares leads to some intriguing possibilities. Although most companies can profit by attempting to increase their market shares, some may conclude that they are at (or possibly beyond) the point at which expected costs and risks outweigh expected gains. The authors suggest various strategies that these companies might consider in attempting to manage their market shares.Capturing a dominant share of a market is likely to mean enjoying the highest profits of any of the companies serving that market.¹ It can also mean winning the leadership, power, and glory that go with such dominance.

But high market share can also mean headaches. Companies possessing it are tempting targets for actual and potential competitors, consumer organizations, and government agencies. IBM, Gillette, Eastman Kodak, Procter & Gamble, Xerox, General Motors, Campbell’s, Coca-Cola, Kellogg, and Caterpillar are cases in point. Their market shares have been their blessing and their curse—their curse because they must make their decisions and manage their operations with much more care than do their competitors. These companies cannot aggressively seek larger shares because further gains may break the dam and let the waters of antitrust action pour in. In some cases, these companies may even have to give up some share in order to stem the tide.

The company that acquires a very high market share exposes itself to a number of risks that its smaller competitors do not encounter. Competitors, consumers, and governmental authorities are more likely to take certain actions against high-share companies than against small-share ones.

Smaller competitors, for example, can direct certain types of attack against larger organizations, attacks that would not work as well against companies of equal or smaller size. One type of attack has been to file private antitrust suits in an attempt to demonstrate that the larger competitor has violated antitrust laws while amassing its dominant share. In one of these suits, a court recently ordered IBM to pay Telex $259.5 million (this was later reversed by an appeals court). Eastman Kodak, Xerox, Anheuser-Busch, Gillette, and General Foods are currently involved in other private antitrust actions.² Another type of attack involves the use of comparative advertising. Avis, B.F. Goodrich, Seven-Up, and others have found it profitable to mention or picture the products of their large competitors in their ads, and then to suggest the superiority of their own products.

Potential competitors also present problems because they may see the company with the largest share as the only competitor stopping them from capturing a portion of the profits being earned in a particular industry. Clearly, some large multiproduct companies have had considerable success in entering lucrative markets previously dominated by one or a few organizations. Procter & Gamble, for example, has recently entered several markets (potato chips, tampons, deodorant sprays, and toilet paper) with noteworthy results.

Yet another risk is posed by consumer or public-interest organizations. A larger market share usually means greater public visibility; consumer groups may choose the more visible companies as the targets of their complaints, demonstrations, and lawsuits. Campaign GM—the proxy battle to force General Motors to take a number of actions believed to be in the public interest—was conducted against the largest and most visible auto manufacturer. Similarly, SOUP—Students Opposed to Unfair Practices—was originally formed to fight the use of alleged deceptive practices in the advertising of Campbell Soup, the leader in the soup industry. Eastman Kodak, First National City Bank of New York, and DuPont are three other dominant market-share companies that have been singled out by consumer or public-interest organizations. Such attack by a consumer group can, of course, create ill will for the organization, as well as involve it in costly litigation.

The high market-share company also has to cope with antitrust initiatives taken by the government. The Justice Department and the Federal Trade Commission are placing a renewed emphasis on the “structural” characteristics of markets. Rather than wait for conclusive evidence that the conduct within an industry has been anticompetitive (that is, predatory or collusive), these agencies have taken action primarily because noncompetitive market structures have allegedly existed.

Recent suits have been filed against IBM, Xerox, the eight major oil companies, the four major cereal manufacturers, and ReaLemon; in all of these suits the government has emphasized that these companies’ market shares are so large that their competition has virtually disappeared. One might say that these companies are now being penalized for their success. In any case, they are all involved in expensive legal battles, and they all face the prospect of being broken up or required to drastically alter their ways of doing business.

More high market-share companies can expect antitrust suits when the FTC begins to exercise its newly won authority to require line-of-business reporting from major corporations. With such attention focused on their daily operations, multiproduct companies will find it harder to disguise their dominance of a particular market, although they may be able to disguise its profitability through arbitrary allocations of fixed overhead. Congressional pressure to fight inflation through stepped-up enforcement of the existing antitrust laws will also cause severe headaches for many high market-share companies.