Thus, the industry had evolved from a monopoly to an oligopoly; Fussily became the second largest company. The government terminated both decrees due to Kodak losing its market share in the United States and its inability to compete globally. Kodak is now able to fully compete in the aggressive market both nationally and globally with new marketing tactics. II. Kodak is an American technology company that focused on Imaging solutions and services for businesses.
In 1994, there were five firms In the color negative film industry In the united States: Kodak, Full, Conical, Gaff, and MM.
It’s a good Illustration (according to Kodak) of an oligopoly. In an oligopoly, only a few companies control the entire market. These firms are in a highly concentrated industry. Oligopolies can result from various forms of collusion which reduce competition and lead to higher costs for consumers.
Once a company in an oligopoly changes price or strategy both profit and other companies are impacted. In other words, the companies in this industry will change at the same time, especially facing a challenge. In their current market position, Kodak retains the highest market share.
Kodak receives 75% of film sales in dollar amount and 67% of unit sales. For example, Kodak has 241,000 retailers to sell its products, and Fuji, as the main competitor of Kodak, only has 71 ,OHO outlets. The reason Kodak has this market superiority is because competitive advantages help them keep their high market share.
The first advantage Is customer loyalty. Fifty percent of consumers will not change their purchasing habits no matter how high the price of Kodak Is (within reason), and another forty percent of consumers will consider Kodak products flirts.
In fact, Kodak is making a higher argil In comparison to tenet rivals. Its Vance technology Ana position In ten market influences customers to trust their products. The second thing that makes Kodak stand out is its policy on vendors.
Kodak provides rebates to dealers who sell extra or only Kodak film. For example, Kodak can provide a type of instant rebate, which means that retailers will receive some discounts or cash back when they order Kodak products. Thus, dealers are drawn to these benefits and want to partner with Kodak.
However, the government did not want Kodak to have such a huge impact on the market. According to the government, it is harmful for the development of film industry and it is also unfair for the other companies. The 1921 and 1954 decrees issued by court required Kodak to make changes so they do not have such dominance.
The 1921 decree prevented Kodak from buying competitors and practice special dealing with retailers. The 1921 decree also restricted Kodak from selling” private label” film under a different brand name.
The 1954 decree is there to break up Soda’s technological dominance of color film photofinishing by requiring Kodak to license and provide assistance to photofinishing competitors. Although Kodak sells products at a higher price, the price exceeds its marginal costs by two. If a company wants to get maximum profits, it should produce a certain amount where marginal revenue equals to marginal costs. Marginal revenue is associated with price elasticity of demand.
Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good.
The marginal revenue of a product is less than its price in order to get more profits. There are several elements to influence the price elasticity of demand. First is the quantity of a bustiest. If a product has more substitutes, it means it will have a high price elasticity of demand because the quantity demanded of this product will decrease when its price is increasing.
But in this case, Kodak has more control in price making. It can make a higher price with high sales. The second element is time. When consumers have more time to research a product and make an educated decision, they will search to find the best price value.
In the film market, the products are almost the same, but Kodak is able to give itself a better reputation through innovation and by being a technological leader. The third and final reason for Soda’s high own elasticity of demand is expenditure share.
If the cost of spending on a product occupies a big share in your income, the more sensitive a company is to its change in price. Ill. CAUSES OF THE PROBLEM Elasticity of Demand The Problem: Kodak is unable to properly compete against leading competitors and their differences between price elasticity of demand.
The Cause: Kodak developed into the predominate firm of the amateur photography industry by becoming the leading innovator of color photography and color slide film. As society was introduced tit Soda’s newest inventions for the first time, a bond was rooted between supplier and consumer. Throughout the years this bond has been nourished with Kodak providing high quality products, modern ideas, and quick client demand responses.
According to the article Managerial Economics and Business Strategy, “50% of consumers in this country will buy only Kodak film regardless of price, and another 40% prefer Kodak” (Babe).
In response, Kodak was able to create its own elasticity of demand: De = 2 A in quantity demanded / % A in price). In other words, Kodak changes a price twice as much as Its marginal cost Nils created Dulcetly Tort leaning competitors (Fuji, Conical, Gaff, and MM) as Kodak can easily increase overall revenue and retain product sales; for example, a 5% decrease in prices would invoke a 10% increase in sales. However, it has been found that Kodak and Fuji, the second largest firm, have opposite elasticity of demand. While Kodak is strongly affected by consumer demand, Fuji is strongly affected by the cost.
Soda’s price elasticity of demand (De = 2) confirms Soda’s company as elastic (consumer demand is highly sensitive to price) while in response Fuss’s company is inelastic (consumers are indifferent to product price). The Rothschild index is used to “… Measure the sensitivity to price of a product as a whole relative to the sensitivity of the quantity demanded of a single firm to a change in its price”, that is, R = (ET)/(BEEF), where ET = Elasticity of Total Industry and BEEF = Elasticity of a Firm (Babe). This is used to interpret the concentration of firms within an industry.
Assuming the rule O R 1, if R = 1, then the market and firm’s elasticity of demand are one and the same, implying a monopoly; if R < 1, then the market is likely more competitive. Originally when Kodak was the single leading company, the Rothschild Index had suggested a synchronized elasticity of demand among both firm and industry. Taking into consideration of Fuji’s opposing inelastic demand, when the amateur photography industry first began to morph into an oligopoly market structure Kodak’s market power began to slip.
Moreover, we can assume that the lesser Soda’s Rothschild Index value becomes, the more market share is dispersed among other firms; for example, as R lessens to O for Kodak, R grows closer to 1 for Fuji. During the time when the 1921 and 1952 onset decrees were still practiced, Kodak was unable compete to its fullest potential.
Soda’s inability to practice retail contracts and conceal its technological advances had hindered its strategic plans to second best. Competing companies were thus able to mature in the amateur photography industry in Soda’s blind spots.
Therefore, while the industry elasticity of demand further differed from Soda’s firm, Fuji gained Soda’s market loss. Unable to retaliate and react accordingly due to government regulations, Kodak could not maintain its market share and power. Government Regulation (1921 ; 1954 Consent Decrees) The Problem: Government Regulation inhibited Kodak to equally compete against rival companies both domestically and globally.
The Cause: Over the years Kodak has maintained a near permanent high consumer loyalty.
This was first proven during the sass when Kodak acquired over 90% of the markets for both color film and color photofinishing alike. Due to Soda’s monopoly in the early sass, the United States of America government had stepped in with the 1921 consent decree. The purpose of this decree was brought into effect to inhibit Soda’s ability to propose exclusive dealing contracts with retailers. Such dealings included retailers only selling Kodak products, and/or refusing to sell other brand products or goods without the Kodak name brand.
Additionally, the 1952 consent decree was legalized to further extract market power from Kodak by permanently disbanding Soda’s package deal of connecting the sale of its color film to its processing, and requiring Kodak not only to license its technology, but also provide technical assistance to other firms. Although the decrees were originally legalized to regulate the industry monopoly, the United States government declared that Kodak no longer held market power over other meaning Tells Ana eliminate Don decrees In November AT 1 Soak argued t possession of market share is only a single measurement that contributes to market power.
It was further argued that the 1921 and 1954 decrees restricted Kodak from competing in the global market. From the time of the 1921 and 1954 decree implementation and elimination, Soda’s domestic market share of sales and dollar value declined. Soda’s market share in dollars had decreased from 75% to 67% and market share in sales revenue from 80% to 75%.
Kodak not only struggled to compete in its domestic lands, but it also met restrictions from the global market as ell. Soda’s market share declined in Canada (from 70% to 48%), Asia and Oceania (from 70% to 28%), Europe (44%), and Latin America (Tsunami).
Most in particular, Kodak faced limitation in Japan’s industry market with only a 10% market share. Fuji was accused of monopolizing the industry with a 70% market share while refusing to allow other companies to successfully establish themselves. Since the 1921 consent decree restricted Kodak from offering exclusive contract deals, Kodak was unable to provide competing business offers to already established retailers in Japan.
Kodak alleged that “… Fussily and MIT had denied Kodak access to Sauna, a wholesaler of photo film and papers” (Tsunami).
In addition to the barriers of entry in Japan, Kodak also faced product and technological production-process imitations from indigenous companies in other countries. As the 1954 consent decree forced Kodak to assist and license its technological advances with other companies, Kodak was unable to protect itself from impersonators.
Monopoly Vs.. Oligopoly (The Five Forces) The Problem: Kodak has not been able to adapt to differences in oligopoly industry. The Cause: To help evaluate the activities that are behind the scenes of businesses, Porter’s Five Forces and Industry Profitability Model will be used.
A monopoly is described as a single firm or single most power firm in an entire industry.
An oligopoly, however, is an industry made up of a few large firms. Consequently, each industry type handles each of the five forces to which benefit them the most. Type of Force Monopoly Oligopoly Power of Supplier Suppliers have little to no bargaining power over their price for buyer(s). Kodak has the ability to pay less for supplies; Fuji had paid 10% more from suppliers. Suppliers have little to some bargaining power.
There still only a few large firms, but has the ability to sell to other leading companies. Fuji is also able to pay less for goods now. Power of Buyer Kodak determines what price suppliers offer to them. The firm is also able to maintain premium prices for good. Company buyers maintain high bargaining power.
Rivals can now lower their costs. Industry Rivalry No Rivalry. Kodak has the ability to define the industry. Few rivalries – companies compete on price, promotion, placement, and product quality Substitutes ; Complements Unique product. No substitutes available.