- September 9, 2012
- Posted by: essay
- Category: Free essays
The monopolization of the market is an ultimate goal of any company since it ensures the leading and unchallengeable position of the company in the market and prevents any risk of competition. Moreover, the monopoly puts the company in the superior position not only to rivals but also to its customers because a company having a monopoly can establish its own prices and develop policies which are beneficial for the company solely, while needs and interests of customers are secondary. In such a context, the monopolization of the market turns out to be absolutely undesirable for customers who are deprived of a possibility to choose a company supplying products or services. Instead, they need to use services or buy products of the monopolist. In fact, the Yellow Cab Company perfectly illustrates the extent to which monopoly can be harmful for the market and customers and beneficial for the monopolist.
On analyzing the current position of the Yellow Cab Company in Bloomington, it is possible to estimate that the company is a monopolist in the local market and there are no other cab companies operating in Bloomington. In actuality, this means that the Yellow Cab Company can develop steadily without a risk of the growing competition from the part of its rivals. In such a situation, the company can raise entering barriers making them unsurpassable for potential competitors who can attempt to enter the local market. In actuality, it is only the company comparable in size and market value to the Yellow Cab Company which can attempt to enter the local market, but a priori such a company will be in a disadvantageous position because of the current dominant position of the Yellow Cab Company. The dominant, monopolistic position of the Yellow Cab Company allows the company to control the local market and local customers are accustomed to use its services, while the appearance of a new company will be accompanied by a strong opposition not only from the part of the Yellow Cab company but also by the lack of customer loyalty and confidence in a new cab company.
However, the position of the Yellow Cab Company is not as perfect as it may seem to be. At any rate, it is not absolutely unchallengeable since the monopoly has a side-effect which can potentially undermine the position of the company in case of appearance of a new, serious rival in the local market. What is meant here is the company-customer relationships which have started to deteriorate due to the policy of the company which is primarily concerned with its own profits and pays little attention to customer services, their quality, and the level of customer satisfaction. In actuality, it is obvious that the further deterioration of the quality of services and the growing customer dissatisfaction will weaken the position of the company in the local market since the only thing that keeps company the leader is the lack of competition (Peters, 163). It is obvious that if the customer dissatisfaction is high the appearance of an alternative, a new company offering services of the higher quality will undermine the position of the Yellow Cab Company.
In fact, customers are deprived of a possibility to choose a cab company. This is why they are unable to influence policies of the Yellow Cab Company which do not really meet interests of customers. In this respect, the pricing policy of the Yellow Cab Company evokes a strong dissatisfaction of customers because the company, being a monopolist, establishes high prices and customers have to pay whatever the price or use other means of transport. Naturally, people cannot refuse from using cabs and they are simply forced to use services of the Yellow Cab Company, even if the price is exorbitant. In such a situation, the company naturally attempts to maximize its profits and establishes maximum possible price to get maximum revenues, even if the price is unreasonable and not justified by any economic factors, such as cost of fuel, for instance. Today, the Yellow Cab Company establishes price which is irrelevant to the actual market situation. The only factor that influences pricing policies of the company is its own desire to increase profits. However, the company can stop rising prices, when the number of customers drops consistently to the extent that the high price will not cover the losses of customers.
In this respect, it is also necessary to take into consideration the buying power of customers, which influences substantially the pricing policy of the Yellow Cab Company. The population consists mainly of students of Indiana University. Naturally, the buying power of students is consistently lower compared to the buying power of working people or representatives of the middle class, for instance (Burton, 311). As a result, the company should limit its prices to meet buying power of its target customer group. On the other hand, it does not prevent the company from the establishment of unreasonably high price. Therefore, customers have to much as they can afford.
Finally, the Yellow Cab Company attempts to save costs limiting working hours and the number of cabs. To put it more precisely, cabs are not available on Friday and Saturday nights. The unavailability of cabs create significant inconveniences to customers, but the company minimizes its expenses since, in such a way, it optimizes the work of its cabs. In fact, Friday and Saturday nights do not bring the company considerable profits and the limitation of working hours and the number of cabs on such days allows the company to avoid potential losses because of a low number of customers. Instead, the company operates only when it is the most profitable for the company (Pine and Gilmore, 216). As soon as the company faces a risk of some financial losses or low efficiency of the work of its cabs it prefers to limit the number of cars, working hour or stop its operations at all.
Thus, taking into account all above mentioned, it is possible to conclude that the current monopolistic position of the Yellow Cab Company in Bloomington is beneficial for the company but it creates numerous inconveniences for customers. In fact, the company establishes maximum prices forcing customers to pay as much as they can afford and develops its policies, regardless of interests and needs of customers. Naturally, customers have to pay unreasonably high price and do not always have a possibility to take a cab. At the same time, the company maximizes its profits. However, it is important to understand that such a situation can undermine the position of the company in the local market, if a new cab company enters the market and offers cheaper services of higher quality.