Differentiating Between Market Structures – Anheuser-Busch InBev

This paper discusses the application of significant microeconomic concepts towards the competitive strategies of Anheuser-Busch InBev (AB InBev), the producer of Budweiser, and chief competitor in alcohol industry. It, also, evaluates the differences between market structures and points out a group of competitive strategies consistent with the market structure that best aligns with the alcohol market in which Anheuser-Busch InBev competes.  Anheuser-Busch InBev is a Brewing and Beverage Company of Brazilian-Belgian origin headquartered in Sao Paulo, Brazil and Leuven, Belgium (Knoedelseder, 2014). Being the largest brewing company in the world, it commands more than 25 percent international market share in the alcohol industry. In differentiating between market structures, it is significant to note that there five types of market structures: perfect competition, monopoly, monopolistic competition, Contestable markets, and oligopoly.

Perfect Competition

It is significant to not that the above mentioned market structures differ from one another in a number of ways. Perfect competition; for instance, has a huge number of buyers and sellers. The players in this kind of a market structure are usually independent and well informed about the identical products that they exchange. Perfect competition differs from other market structures owing to the fact that no single buyer or seller can have the power or capacity to affect the market price of the item. Besides, there is no need for advertisement and use of brand names since traders and customers exchange similar products both in terms of size and quality. There is free entry and free exit in in this market structure, and while inside the market, traders are free to conduct their business activities (Grimes, 2012). It is also worth noting that the level of information among sellers and buyers is reasonable enough to be able to make informed choices. With this level of information, most buyers would prefer getting items from shops and points that offer convenient prices. Perfect completion, also, differs from other market structures due to the way sellers and buyers display independent actions within the market. This is significant for ensuring that players in the market compete with one another for their best interests: customers for the best prices and sellers for the dollar of the customer.

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Monopolistic Competition

In monopolistic competition, there are conditions similar to those found in perfect competition apart from the need to emphasize product differentiation. This market structure allows competitors to modify their products with the intention of attracting more and more customers and thereby monopolize small sections of the market (Grimes, 2012). Monopolistic competitors therefore achieve this through utilizing product differentiation. Differentiation also may extend to various other aspects such as service, packaging, store design, delivery, mode of payment, store location and various other considerations. Nonprice competition is also an essential characteristic in monopolistic competition. This implies that there is a lot of utilization of various promotional campaigns like advertising and giveaways to convince customers and achieve their loyalty to the brand. Through promotional campaigns, monopolistic traders try to create an impression that their goods are different from others in the market.

Monopoly

Monopoly is also a form of a market structure and differs from the rest in the sense that it allows only one seller to dominate the market with a particular product of interest. In actual sense, it is the direct opposite situation of perfect competition. However, existence of a monopoly is a rare situation in the American economy except for the local telephone company (Mahnken, 2012). Different types of monopolies in this case include: government monopoly, technological monopoly, geographical monopoly, and natural monopoly. Due to lack of competition in this market structure, the monopolist has the power to make prices that it finds convenient. In terms of size, the monopolist is usually very large as compared to the perfect competitor. Contestable markets are also another form of market structure where there are low sunk costs, and free entry and exit. In considering contestability theory, the realization is that the risk or threat of competition is more significant than the number of sellers or firms operating the market.

Oligopoly

The last type of market structure is oligopoly where only a few extremely huge companies dominate the industry. Oligopolistic products are usually presented in standardized or differentiated forms. This is the type of a market structure where Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg dominate the alcohol industry, and where Coca-Cola Co., PepsiCo, and Dr. Pepper/Snapple dominate in the soft drinks market (Grimes, 2012). In oligopoly, the potential of any one company to influence a difference in the industry in reference to price, output levels and sales is considered more significant than the number of companies present. This market structure differs from the rest in the sense that firms tend to follow the actions of other oligopolists. Besides, they act together when it comes to setting prices for their products.

Application of significant microeconomic concepts towards the competitive strategies of Anheuser-Busch InBev (AB InBev), the producer of Budweiser, and the chief competitor in alcohol industry

Anheuser-Busch InBev embraces various competitive structures that are consistent with oligopolistic market structure in which it operates. The first strategy is equity-based partnerships, which enable the company to have ease penetration into the foreign markets. Through this strategy, the company partners and invests in some of the top performing foreign brewing and distributing companies like its 37 percent share in the Mexican Grupo Modelo (Knoedelseder, 2014). This strategy allows Anheuser-Busch InBev to maintain and control its management and marketing practices, and at the same time embrace the distribution channels and market expertize embraced by the local experts. The company, also, influences the global beer market by sending its representatives to the governing boards of foreign brewing and distributing companies. Through equity-based partnerships, Anheuser-Busch InBev converts potential competitors into significant business partners and thus be able to maintain its aggressiveness in the global markets.

Anheuser-Busch InBev’s second strategy is country of origin branding (Mahnken, 2012). In international markets, there is consistent positioning of certain brands such as Budweiser as American beers. It is a strategy that enables the company to achieve a competitive advantage in two approaches: (1) the company benefits from American heritage and image since consumers in most international markets prefer associating with the American culture; (2) the company can target the middle and upper class by positioning Budweiser and other brands as quality products from America. This approach is effective especially in nations where a premium is placed on imported products by beer consumers. Anheuser-Busch InBev, also, embraces sprinkler expansion strategies as one of its competitive strategies. Being the leading brewing company in the world, it can shut down any competition by utilizing its extensive capital resources (Mahnken, 2012). The company, also, embraces customer-focused approach in its range of competitive strategies. For instance, on a global scale, the company focuses on Budweiser more than it does to other brands. This is because only Budweiser can meet the increasing international demand for a beer that is lighter and less bitter.

Oligopoly has a number of positive effects on Anheuser-Busch InBev. For instance, being a market structure that only allows a few companies to dominate the market; the company is able to charge consistent prices with its sales levels (Grimes, 2012). This means that Budweiser can reap better prices as compared to what the case would be in monopolistic competition. Besides, being an industry leader with its market share exceeding 25 percent, it can command the behavior of other oligopolists such as SABMiller, Heineken and Carlsberg. However, it should also be clear that oligopoly affects Anheuser-Busch InBev negatively in a number of negative ways. For instance, deliberate efforts by the company to increase its product prices without regard to the competitive environment may influence price wars with other oligopolists.

In order for Anheuser-Busch InBev to maximize its profits, it should consider the following recommendations. The company requires adopting a dream-people culture. Through this platform, the company can increase its competitive advantage by hiring and retaining the best man power (Mahnken, 2012). Secondly, the company should embrace point of connection as its winning position by utilizing consumer insights in order to comprehend and delight beer consumers.

In conclusion, the paper discussed the application of significant microeconomic concepts towards the competitive strategies of Anheuser-Busch InBev (AB InBev), the producer of Budweiser, and the chief competitor in alcohol industry. The five different types of market structures discussed in the paper are: perfect competition, monopoly, monopolistic competition, Contestable markets, and oligopoly. Anheuser-Busch InBev embraces various competitive structures that are consistent with oligopolistic market structure in which it operates. They include equity-based partnerships, country of origin branding, sprinkler expansion strategies, and customer-focused approach.

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