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Market Structure of Limited-Service Restaurant Industry
A low concentration ratio of the limited-service restaurant industry demonstrates that there is no monopoly in this market. It denotes that many firms have relatively the same shares in the market, and evident dominant players are absent. This information allows for supposing that pure competition is found in this industry, and the given essay will present specific evidence to prove that there is credible reasoning behind this statement.
When it comes to the limited-service restaurant industry, multiple businesses represent it. They provide food services, and one should admit that snack and nonalcoholic beverage bars are not included in this industry. According to SIC.com, McDonalds and Burger King are leading limited-service restaurants in the USA according to their brand recognition from the list of more than 143,000 companies ( NAICS Code 722513 ). However, no major players have a market share of more than 5% (IBIS World par. 4). It means that there are no evident dominant businesses in the industry.
As a rule, the industry under analysis offers homogenous goods that are typically associated with fast food. However, the firms tend to specialize in specific niches to gain a competitive advantage over other businesses. For example, some establishments provide their food services together with selling alcoholic beverages (SIC.com, NAICS Code 722513 par. 1). This information demonstrates that companies can find niches for specialization and compete in them. Simultaneously, the high number of companies denotes that businesses have many rivals in the specialized areas, implying that quality and innovation should be promoted to succeed in the competition.
The products and services of limited-service restaurants can be substituted by those of full-service restaurants. This industry is developed in the USA since more than 562,000 companies operate in it (SIC.com, NAICS Code 72251 ). That is why limited-service restaurants compete with one another and full-time establishments. It means that they should invest in improving the quality of their service to ensure that they attract customers.
Since the industry does not have monopolistic players, individual companies do not have the power to influence prices. According to Open Text, a competitive firm should accept the price for its output as determined by the products market demand and supply (par. 3). It denotes that the firms are interdependent, meaning that an individual businesss decision to increase prices to maximize profits will not generate the desired outcome. Instead of it, this decision will make customers purchase similar products from other firms.
According to the information above, it is not a surprise that limited-service restaurants invest in marketing and advertising to compete. QSR Magazine demonstrates that advertising is an influential factor in making more customers visit some eating places (par. 22). In particular, digital advertisements are among the top motivators for potential clients, meaning that businesses should reach individuals through their mobile phones and the Internet environment.
The industry under analysis has a few essential barriers to entry. On the one hand, a high number of existing competitors is a significant barrier that can prevent other businesses from entering the market. It means that it can be challenging for new players to compete with the existing companies. On the other hand, customer loyalty is another barrier to entry. This phenomenon implies that clients have developed robust connections with specific brands, and it is not simple for new players to overcome it. These barriers support the claim that there is pure competition because new firms can relatively easily enter the industry.
In conclusion, the paper has demonstrated that the limited-service restaurant industry features pure competition. A low concentration ratio indicates that multiple organizations operate in the market, and none of them has a share of more than 5%. Even though individual firms do not have the power to determine prices, they are highly competitive based on advertising. They invest in this area to attract more customers and increase their profits.
References
IBIS World. Fast Food Restaurants Industry in the US Market Research Report. 2021. Web.
Open Text. Principles of Economics. n.d. Web.
QSR Magazine. Study: Digital Ads Rule the Day in Limited Service. 2020. Web.
SIC.com. NAICS Code 72251 Restaurants and Other Eating Places. n.d. Web.
. NAICS Code 722513 Limited-Service Restaurants. n.d. Web.
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