Theoretical and Contemporary Approaches

The aim of this study is to understand the business strategy; its background and mostly used forms in today’s organizations. At first, the four basic market structure and their strategies are reminded in a nutshell and emphasized on oligopoly as the widely seen market structure. Secondly, the contemporary approaches on business strategies are studied. Importance and the process of business strategy are studied. Understanding of what strategies can be used is in which levels of business considering the corporations strong and weak points and the environmental factors was the biggest benefit gained.

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As more industries become global, business strategy and strategic management is becoming an increasingly important way to keep track of international developments and position the company for long-term competitive advantage. Knowledge is becoming a key asset and a source of competitive advantage. The Internet and new technologies are forcing companies to transform themselves. Strategy is a continuous process. There is no start and finish for the process of strategy.

Instead, once up and running, organizations should be continually analyzing and reviewing their strategies and implementing these, along with any changes. Organizations are aware that, as the environment and their market(s) change, strategies become outdated and require alteration. Market structure: interconnected characteristics of a market such as the number and relative strength of buyers and sellers and degree of collusion among them, level of forms of competition, extent of product differentiation, and ease of entry into and exit from the market.

A market consists of a group of firms and individuals who are in touch with each other to buy or sell some god or services. Economists have generally found it useful to classify markets into four broad types: perfect competition, monopoly, monopolistic competition, and oligopoly. In perfect competition and monopolistic competition, there are many sellers, each of which produces only a small part of the industry’s output. In monopoly, the industry consists of only a single seller.

Oligopoly is an intermediate case where there are a few sellers. A firm under perfect competition has no control over price. On the other hand, a monopolist is likely to have considerable control over price. A firm under monopolistic competition and oligopoly is likely to have less control over price than monopolist and more than perfect competitive firm. Firms in a perfectly competitive market all produce identical products. For example, a farm producing corn.

In a monopolistically competitive industry, firms produce somewhat different products. One firm’s shirts differ in style and quality from another firm’s shirts. In an oligopoly, firms sometimes, but not always, produce identical products. And in a monopoly, there can be no difference among firms in their products, since the industry contains only one firm. In a perfect competition, barriers to entry are low, thus, only a small investment is required to enter. Similarly, there are low barriers in monopolistic competition.

But in oligopolies such as auto manufacturing, there tend to be very considerable barriers to entry because it is expensive to build an auto plant. In monopoly, entry is blocked: once entry occurs, the monopoly no longer exists. In a perfect competition, there is no nonprice competition. In monopolistic competition, there is considerable emphasis on nonprice competition. Shirt manufacturers compete by trying to develop better styles and by advertising to they try to get advantages. Oligopolies also tend to rely heavily on nonprice competition.

For example, computer firms try to increase their sales by building better computers and by advertising. Monopolists also engage in advertising, although this advertising is directed not at capturing the sales of other firms in the industry since no other firms exists, but rather at increasing total market demand. Perfect competition, pure monopoly and monopolistic competition are rather rare in the real world; the dominant market structure in a modern economy is generally oligopoly.

And game theory analysis is mostly used to explain the different situation in oligopoly. Game theory analyses the range of best moves available in a situation of mutual interdependence where the participants lack full information. The theory assumes that participants self-interested, which, in economic games, usually mean that they try to maximize their benefits: that is, in case of firms, their profits. Some games are one-off, while more complicated games can be repeated. The most famous game called the prisoner’s dilemma.