Market Dominance “Dominant firms: Impact on consumers and producers plus issues of control and regulation”

Wouldn’t it be nice to be the leader in your industry? It would be like your business being a giant like Tesco or Microsoft.  When your business presence can affect change in the market, you have achieved market dominance.

What is Market Dominance? Market dominance is a measure of the strength of a brand, product, service or firm, relative to its competition in a specific geographical area. For a business, product, brand to have Market Dominance, it needs to have the “lion’s share” of the market in a particular area. Market dominance allows the dominating vendor to adopt the "my way or the highway" attitude

Market Share There are several ways of calculating market dominance. The most direct is Market Share. Market Share is the percentage of the total market achieved by a firm or brand.  As a general rule, a firm or brand must control at least 50% of a particular market to be considered dominant in that market However, Market share is not a perfect indicator of market dominance. We must take into account the influences of customers, suppliers, competitors in related industries, and government regulations. 

Case Study on Market Share - Dixons Dixons is widely regarded as the dominant electrical retailer in the UK

Advantages of size in the electrical retail market: Buying advantage: An ability to use size to source product more cheaply is a clear advantage in an industry that faces rapidly declining consumer prices Volume advantage: As a low-margin business, retailers that can sell in high volumes are in the best position to gain market share Access to new products: The largest retailers typically have first-mover advantage in stocking new "in demand" products that have just been released Advertising scale: As a price-led business, access to national advertising provides the ability to keep customers regularly informed of the latest product deals. This helps to reinforce customer perception of value, in addition to strengthening the Dixons Group brands Access to retail property: With the continuing trend towards out-of-town, larger destination stores that offer a broader range of choice, and with restrictive planning laws limiting opportunities, the larger electrical retailers have both the financial and operational capacity to secure such important new sites.

The Market Leader The market leader is dominant in it’s industry. It has substantial market share and often extensive distribution arrangements with retailers. It typically is the industry leader in developing innovative new business models and new products (although not always). It tends to be on the cutting edge of new technologies and new production processes. It sometimes has some market power in determining either price or output.

A business that has achieved market dominance makes it hard for other businesses of that type to enter into competition in the geographic area.  There is not enough of a market left for them to compete since you control most of it.

Market dominance doesn’t automatically transfer from one area to another.  It depends on the strength and adaptability of your product in the market.  If you began to offer your product internationally, you have the potential to dominate that market as well, but it is not a certainty.  The competition there may be different and stronger.

Recall, that in the early 1980s you could not simply buy a printer and assume it would work with your computer software. In fact, software developers needed to do extra work to make sure their specific software program worked with different printers. This all changed when Microsoft Windows captured the majority of the desktop PC operating system business. With the market dominance of Windows, Microsoft was able to dictate driver standards to printer hardware vendors. The net result was that customers could buy any printer and it worked. Customers won, not because all the printer hardware vendors agreed to interoperate, but because the vendors were forced into submission. As a printer vendor, if you didn't write a Windows print driver you went out of business.

There was also a time, prior to 2001, when you couldn't necessarily download any song instantly. Thank Apple for dominating the music publishers and forcing compliance. Clearly customers won.

When looking at the necessary level of market dominance required, it is clear that the dominance does not need to be complete in order to foster interoperability; it simply has to be an undeniable victory over a material chunk of the market. Both Microsoft Windows and Apple iOS have dominated respective portions of the market. As such, both Microsoft and Apple can define "their standards", other vendors follow and customers win. To continue the printer driver story from above, most printers now ship with both Windows and Apple print drivers due to the Microsoft/Apple dominance.