Management Economics: Nike's Market Structure and Optimal Position

This report analyzes Nike's market structure, its evolution over time, and the optimal market structure for the company. It also discusses Nike's products, services, and company history.

MANAGEMENT ECONOMICS 2

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1.About the company...................................................................................................................3
Products and services...................................................................................................................3
Company history..........................................................................................................................3
2.Analysing the market structure of Nike....................................................................................4
3. Different market structure........................................................................................................6
4. Optimal market structure.........................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
The management economics basically refers to the application of the economic theories
and models in the business practices which helps in effectively determining the impact of its over
the business performance. The business runs on the concepts of the economics like demand and
supply and the elasticity along the market structure in which it is operating. In this report, Nike is
taken as an organization which is into the sportswear industry and is focused on the athletic
running shoe products. This report provides an insight about the company and its products and
the market structure in which it is operating from its inception. It covers the change in the market
structure with time along with the nature of industry in which it is operating.
MAIN BODY
1.About the company
Nike is a greater and one of the biggest distributor of the athletic footwear and apparel in
the globe. The company is having a global presence and is expanded in nearly 108 countries. It is
considered as the world's foremost supplier of the athletic shoes and apparel along with the major
producer of the sports equipment. The logo of Nike is indicates that it yields the quality products
to its customers with an affordable price (ABOUT NIKE. 2020). This check mark is an assenting
symbol highlighting convenience which also indicates success. Nike Inc with its subsidiaries
works on designing, development, marketing and selling of its athletic footwear and apparels
globally.
Products and services.
The company offers Nike branded products into the 6 categories which involves the
running, Nike basketball, sportswear, training, the Jordan brand, football shoes. It also markets
the products which are specially designed for the kids along with the other athletic and the
recreational usage, for instance, American football, volleyball, skateboarding, cricket, walking,
wrestling, baseball and other outdoor activities. The company also sells the performance
equipment and accessories which involves the bags, sports ball, eye wear, digital services and
other accessories under the converse, one start, Chevron etc.
Company history
The company Nike was established in the year 1964 named as the Blue ribbon Sports by
the founder Bill Bowerman and Phil Knight. The company has become formal in 1971. It is an
American international company which is into design, develop and selling of the footwear

(History of Nike: Timeline and Facts. 2019). It is headquartered in Oregon, USA. The company
has employed over 76700 employees globally and in addition to the sportswear and the other
equipments, the company also operates its retail outlets and along with this, it sponsors may high
profile athletes.
2.Analysing the market structure of Nike
From the time of its inception the company has being operating in the oligopoly and is
considered as the classic case of oligopolistic market structure. In this, the number of suppliers in
the market were very less and this Nike dominates it. This results into accounting of the greater
percentage of the market share and increased level of market concentration. In the world market
of the sports apparel, the Adidas and Nike holds approximately 60% of the market share
(Lamantia and Radi, 2018). But later in the years, the athlete footwear and the other accessories'
industry become consolidated because of which the leading competitors of Nike Inc. which are
Adidas and Reebok merged in the year 2006. The product differentiation which is also the key
strength of the Nike in the marketplace. Which ash supported it in engaging in the sales of
footwear for various types of sports.
The graph given below represents the revenue of the organization during the initial years
of tits inception. It can be clearly seen that the revenue of the company had increased at the
greater pace every year from 1976 to 1981. In the year, 1976, the company had a revenue of just
$14.1 million which doubled in $28.7 and again doubling in the coming up years and achieved
the revenue of $457.7 million which is a huge jump in the 5 years (Nike Inc. 1981 Annual report.
1981). This represents that there must be less competition in the market at that time resulting into
taking advantage of the oligopoly market. Another important point is that the company was
engaged in the distribution and the selling of the sportswear along with the athletic bags and the
accessory items.

Illustration 1: Nike Inc. 1981 Annual report
But with time, there were increase in the competition which has resulted into changing
the market structure of the Nike to Monopolistic. It is considered to be the monopolistic market
structure which is mainly because it has some characteristics of the perfect competition except of
the fact that its products are not exactly like its competitors like the Adidas and the Under
Armour. This creates an opportunity for Nike to boost their profits through the way of selling out
the differentiated products (Ukav, 2017). The major difference between Nike and its key
competitors is that it offers products for men, women and kids in multiple way which is based
upon the needs and expectations and the existing trends of the market. The biggest threat that
came out for the Nike is the stiff competition with the other rivals in the market that sells the
similar products which pushes or pressurizes the Nike to come out with the new and innovative
product.
But, again, Nike is operating as an oligopolistic competition which is because the
company is having broad range of products which can be compared with the few companies in
the oligopolistic market like the Timber land, Puma etc. The companies under the oligopoly
market arrangement attains and controls the market by the usage of the general barriers to access
(Head and Spencer, 2017). The general limitations pertaining to this are the copyrights, product
technology along with the recognition of the brand. All these are highlighted by Nike as it has
approximately 3000 patents along with air-sole cushion technology. Thus, it becomes very clear

from the above that the Nike is operating as the oligopolistic market structure and is having
dominate position in the market irrespective of the fact that there are few competitors. Since the
time of inception it has been operating this market structure then it changed to monopolistic but
again gain the position of oligopoly.
3. Different market structure.
Monopolistic market is a market where many firms offers same good and services that are in
similar in nature, but they are not the perfect substitute of their product. The barrier to entry in
this market is quite low compare to other market. Today's, Nike have become the monopolistic
firm as there are more competitors in the market which are offering same as Nike. In this market
firms have the power to increase the price of product to earn the profits. Nike had increased their
price in the market comparer to other competitor like Adidas and puma where they are assured
for the premium products. Nike is a sole producer of a particular brand or product which have the
monopoly position at some market as other brands are offer close substitute. The firms earn the
good profits through the strategies that allowed them to boost their profits by selling other
products that compensate in the market of fail product. Nike produce their product in different
way for men, women and children which are produce on the basis of philosophy, design and
preference and trends in the market which fulfil the needs of their customer. The biggest threat of
Nike is another competitor which are selling similar product with new technology and better
quality with low price.
Oligopoly market is that market where small number of firms are available for the particular
product. Monopoly includes the one firm, duopoly include two firms and oligopoly include more
than 2 firms that are producing same product for the market(Ma, Gans, Tourky, 2018). Nike have
duopoly in their past history for years when only Nike, Adidas, Reebok and few firms producing
sports shoes and other product where new firms entrance is very difficulty as they already
captured major of the market. In the world market Nike and Adidas have captured 60% of
market share. But athletic and garment industry have become more consolidated. Where Adidas
and Reebok merged in 2006 which lead to competition for Nike. The two big firms increase the
market shares of both companies, lead to Nike to engage in consolidation. Nike product
differentiate is the key strength of Nike in the market which are preferred over the Adidas and
Reebok. Where sports equipment like football, basketball, cricket bat were also sold by Nike.
Hence, Nike can be compared with only few firm like Adidas and Reebok. In the early stage of

Nike, market structure of the company was oligopoly where only few numbers of competitor is
present like Adidas which are dealing in same product. Whereas, after due to complexity of
market chnages Nike have become monopolistic company in the market where large number of
competition are faced by Nike but as Nike have their unique strength of their product, Nike
product are well preferred compare to other companies.
Illustration 2: Value of selected sports product markets worldwide in 2018 and 2023
Illustration 3: Nike's revenue worldwide from 2005 to 2020

4. Optimal market structure.
A.
Nike is currently operating in the oligopolistic market structure, wherein it has limited
competitors which are large firms assuming the maximum amount of market share. It has few
large competitors like the Puma, Adidas and Armour. In the footwear market Nike is holding a
dominant position having large market share.
The most optimal market structure for Nike shall be the oligopolistic market only in which it is
currently conducting its business (Auer and Schoenle, 2016). Since in this type of market
structure there is less price discrimination and price wars, Nike shall be able to compete and
sustain in a better way. In the oligopoly market structure the entry barriers are high so the threat
of new entrants shall not be posed on Nike. This shall facilitate analysis of the competition and
retaining of the market share.
Since Nike has a well-established brand awareness with little differentiation in the products and
better promotions can lead to assuming higher market share than its competitors. By using the
latest technologies Nike can better promote its products and generate competitive edge over the
competitors. Digital marketing campaign can be an effective tool to reach the public at large and
promote its product and influence the buyer's purchase decision.
Since there are few large businesses who are holding the market share in the industry, Nike can
also plan mergers and acquisitions, strategic alliances in order to benefit from synergy. This
helps in combining the resources of two large firms with their market share which helps them in
attaining economies of scale. The lower cost per unit increases the profitability and growth
prospects of the business.
Product differentiation has also served Nike majorly because it operates in different athletic
segments apart from the footwear industry. It also has athletic bags, sports equipments, air sole
cushion etc. This helps it in capturing the market share further as compared to its competitors.
And on all these products it has reserved its copyright which is a factor that contributes in entry
barriers for new players in the market (Distelhorst, Hainmueller and Locke, 2017).
There is lesser risk of competitors because it is already holding significant share of market and
there is no price wars which facilitates it to globally expand its business with the help of better
marketing and positioning strategies. Also, the technology it uses is patented which further

reduces its risk and allows it to penetrate freely into the new markets. It can also focus on the
niche markets and diversify the products accordingly to meet the requirements.
Over the years since Nike is able to generate good profitability it has been constantly focusing on
the marketing strategies that it applies. The marketing budget also has increased which helps in
building a stronger position in the market (Kristoufek, 2018). It has made its advertising
campaign more effective by involving celebrities like Michael Jordan, Serena Williams and
Tiger Wood etc. With this it has been able to gather more publicity for its brand.
Overall it can be said that since Nike has good market share, product differentiation, less price
wars and an effective marketing campaign it should continue in the oligopoly market structure.
For Bigger company like Nike, government should intervention with some activities like finance,
production and marketing to keep balance in environment. Maintain the ethical working in the
society without hurting any religion, caste, gender directly or indirectly. This is important for
country to interrupt the companies financial accounts to prevent any fraud and illegal activities to
protect the stakeholders. Inspection of financial accounts to check the activities of the company,
payable of tax and liabilities to government and other creditor. This can reduce in effect on
economy and employees working for the company by reducing the prices if the company over
exceed price of the product, government intervene the company to reduce overprice in the
market and equilibrium price are attained by firm. Through government intervention by applying
various laws, rules and regulation that benefits the employees and the society. Ecological
productions without any use of harmful material or any element that cause the human health
working for particular company. Minimum level of wages are provided to worker and employees
by the company and proper working condition for the worker to work in factory. Legal
marketing of goods and service are done by the company and prevent Blake marketing and
illegal ways of selling and distributing of goods. It also intervenes the company to promote
economic fairness. This factors helps company and society to work ethically and prevent all
illegal activities for the development of social welfare and country. To promote the other goals
like national unity and technological advancement in the company. Micro and macro economic
factors are promoted by the government by inverting the company financial accounts like
providing subsidiaries to company, audit of financial accounts and tax paid by the company. This
is done by the government to correct the market failure in the country and attained the
equilibrium market, to attain the equitable distribution of income and wealth of people for

standard living of people and to improve the performance of the country economy and achieve
the target economy.
B.
For Bigger company like Nike, government should intervention with some activities like finance,
production and marketing to keep balance in environment. Maintain the ethical working in the
society without hurting any religion, caste, gender directly or indirectly. This is important for
country to interrupt the companies financial accounts to prevent any fraud and illegal activities to
protect the stakeholders. Inspection of financial accounts to check the activities of the company,
payable of tax and liabilities to government and other creditor. This can reduce in effect on
economy and employees working for the company by reducing the prices if the company over
exceed price of the product, government intervene the company to reduce overprice in the
market and equilibrium price are attained by firm (Danovi, D'Amico, 2020). Through
government intervention by applying various laws, rules and regulation that benefits the
employees and the society. Ecological productions without any use of harmful material or any
element that cause the human health working for particular company. Minimum level of wages
are provided to worker and employees by the company and proper working condition for the
worker to work in factory. Legal marketing of goods and service are done by the company and
prevent Blake marketing and illegal ways of selling and distributing of goods. It also intervenes
the company to promote economic fairness. This factors helps company and society to work
ethically and prevent all illegal activities for the development of social welfare and country. To
promote the other goals like national unity and technological advancement in the company.
Micro and macro economic factors are promoted by the government by inverting the company
financial accounts like providing subsidiaries to company, audit of financial accounts and tax
paid by the company. This is done by the government to correct the market failure in the country
and attained the equilibrium market, to attain the equitable distribution of income and wealth of
people for standard living of people and to improve the performance of the country economy and
achieve the target economy.
CONCLUSION
The above report conclude that most market structure of the company are monopolistic in nature
and only few companies maintain the oligopolistic structure. This shows that Nike have
previously oligopoly market which was lately converted into monopolistic market as there are

new firms entering the same industry and providing the quality goods which affect the Nike
market and decrease the market share. This report also shows some graph which shows the
revenue and shares of company changes year to year. Thus, report conclude that companies
market is very dynamic and can be changed anytime with intervention of government for the
society benefits.

REFERENCES
Books and Journals
Auer, R. A. and Schoenle, R. S., 2016. Market structure and exchange rate pass-
through. Journal of International Economics. 98. pp.60-77.
Danovi, A. and D'Amico, A., 2020. Determinants of successful government involvement in the
restructuring of large companies: a hybrid approach. In 13th Annual Conference of the
EuroMed Academy of Business (EMAB) (pp. 1315-1317). EuroMed Academy of
Business.
Distelhorst, G., Hainmueller, J. and Locke, R. M., 2017. Does lean improve labor standards?
Management and social performance in the Nike supply chain. Management
Science. 63(3). pp.707-728.
Head, K. and Spencer, B. J., 2017. Oligopoly in international trade: Rise, fall and
resurgence. Canadian Journal of Economics/Revue canadienne d'économique. 50(5).
pp.1414-1444.
Kristoufek, L., 2018. Fractality in market risk structure: Dow Jones industrial components
case. Chaos, Solitons & Fractals. 110. pp.69-75.
Lamantia, F. and Radi, D., 2018. Evolutionary technology adoption in an oligopoly market with
forward-looking firms. Chaos: An Interdisciplinary Journal of Nonlinear
Science. 28(5). p.055904.
Ma, J., Gans, J.S. and Tourky, R., 2018. Market structure in bitcoin mining (No. w24242).
National Bureau of Economic Research.
Ukav, I., 2017. Market structures and concentration measuring techniques. Asian Journal of
Agricultural Extension, Economics & Sociology. pp.1-16.
Online
ABOUT NIKE. 2020. [Online]. Available Through:<https://about.nike.com/>.
Nike Inc. 1981 Annual report. 1981. [Online]. Available
Through:<https://s1.q4cdn.com/806093406/files/doc_financials/1981/1981%20annual
%20report.pdf>.
History of Nike: Timeline and Facts. 2019. [Online]. Available
Through:<https://www.thestreet.com/lifestyle/history-of-nike-15057083>.