Market Structure Analysis of McDonald's and KFC in the Fast Food Industry

Economics 1
Economics Assignment
By [Name]
Institution
Date

Economics 2
Abstract
The main aim of the report was to investigate the market structure that both the
McDonald’s and KFC are operating in and make a comparison to the close competing companies
including Starbucks, Burger King, Subway, and Dunkin Donuts. As a result, the report lucidly
found that both the McDonald’s and KFC operate oligopoly market structure given their strong
capital base that allows them to maintain the brand image and customer base loyalty. The close
competing companies such as Starbucks, Burger King, Subway, and Dunkin Donuts were
established to apply product differentiation strategy in order to retain the market operations in the
fast food industry. The report employed both the Demand and Supply theory and global market
comparative advantage theory in order to evaluate the fast food market trend in these companies.
As a result, the report proposed that KFC should enhance its product differentiation and use a mix
of pricing and non pricing strategies such as price mimicking and status quo strategies in order to
expand its operations since McDonald’s is already a stabilized fast food retail company. The
report also used both the primary and secondary data to analyze the market share for the rival
firms in the fast food industry by applying Herfindahl-Hirschman Index.

Economics 3
Introduction
Market structure taxonomy is described using pricing strategies and degree of
competitiveness. Market structure is therefore classified as follows; monopoly, monopolistic,
oligopoly, and perfectly competitive depending on the products and consumer segments.
Differences in market structure depend on how the companies operate (Cubbin, 2013). For
example, in the perfectly competitive market, firms are always the price takers whereas in
monopoly, firms are price makers thus allowing it to dictate the market structure in terms of
capital and production scales. In monopolistic market structure, firms are able town market
powers that allow them to dictate some elements of the operations. In oligopoly, firms are viewed
to have capital advantage which allows them to dictate the prices depending on customer loyalty
(Sonnenholzner, & Wambach, 2014). Although oligopoly market structure is dominated by few
firms, but when the market is shared by few large firms then it is regarded to be highly
concentrated and it is also possible for small firms to operate in the oligopoly market due to
customer base and loyalty.
The report will scrutinize the market structure to which both the McDonalds and KFC
operates given that they are close rivals in the fast food chain industry. Both companies have been
able to dictate and enjoy economies of scale in terms of global expansion and technological
growth thus leading to them to be regarded as close rival firms in the fast food chain industry. To
evaluate the type of market to which these two firms operates in, the report will evaluate both the
primary and secondary data to determine facts relating to the pricing and non pricing strategies,
market trend and shares, and the turnover when compared to the close competing firms. The
report will also provide justification on what KFC should do in order to grow its customer base
thus helps in scaling up its profit.