Management Economics Report: McDonald's Market Structure Analysis

This report provides a comprehensive analysis of McDonald's, a multinational fast-food company, within the framework of managerial economics. It begins by describing the company's history, global presence, and core offerings. The report then analyzes the market in which McDonald's operates, emphasizing the importance of understanding market dynamics for organizational success. It discusses various market structures, including perfect competition, monopoly, monopolistic competition, and oligopoly, ultimately positioning McDonald's within an oligopolistic market structure. Key features of oligopoly, such as interdependence, group behavior, competition, barriers to entry, lack of uniformity, and price rigidity, are examined in relation to McDonald's. The report concludes by addressing the nature of the fast-food industry, highlighting the rising competition and suggesting strategies for McDonald's to maintain its competitive edge. The analysis underscores the significance of market analysis and strategic decision-making in the context of managerial economics for a global company like McDonald's.

Management
economics 2

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK ..............................................................................................................................................3
Describe the company.................................................................................................................3
Analyse the market......................................................................................................................4
Different market structure...........................................................................................................7
Nature of the industry in which the firm operates with suggestions...........................................9
CONCLUSION .............................................................................................................................11
REFERNCES:................................................................................................................................12
Books and Journals:..................................................................................................................12

INTRODUCTION
Economics is defined as a social science which is related with distribution, production,
and consumption of products and services (Tien, 2019). It is necessary for organisations to
understand the economics in order to forecast demand and supply. This is essential to analyse the
market by organisations for the purpose of growing in the market. It depends on the understand
of economics as it provides numerous information about the market and how it works. In
addition to this, managerial economics is an important concept which emphasizes on solving the
business problems (Epanchin-Niell, 2017). It also helps in taking a right decision with the
application of principles and theories of macro and micro economics. In organisations,
economics becomes an indispensable part. In this context, McDonald's is an American
multinational fast food company that run their business in many countries. Their success and
growth of company are depending on their understanding of market. This report will be
discussing the history of company, market analysis, different market structure, and suggestions
for government interventions.
MAIN BODY
TASK
Describe the company
McDonald's is the multinational fast food company which has headquartered in US. It
was founded in 1940 by Richard and Maurice McDonald. This company has a hamburger stand
and after sometime they turned their company into a franchise. In 1955, the chain of McDonald
brothers was purchased (Islam, Zunder and Zomer, 2019). Then after sometimes, it becomes the
world's largest restaurant chain. They have approximate 37855 outlets in all over the 100
countries and they serve to 69 million customers on a daily basis. It is identified that McDonald's
name is known for their some special dishes such as cheeseburgers, french fries, and
hamburgers. They also have chicken products, milkshakes, soft drinks, desserts, wraps, and
breakfast items. Due to the regular change in customers' tastes, and negative backlash, they
added some dishes in their menu such as fish, salads, smoothies, and fruit. Their revenue or
profits come from royalties, fees and rent paid by franchisees. It is the second-largest private
employer in world after Walmart. In 2020, it has ninth highest position in global brand value.

It is found that the Ireland and United Kingdom business model is not similar to U.S. The
reason is 30 percent of restaurants are run on the basis of franchisees. In U.S they have a
Hamburger University where they train their franchisees which is located at Chicago. On the
other hand, it is found that McDonald's restaurants are running through joint ventures of local
entities or governments and McDonald's Corporation. It is identified through Fast Food Nation
by Eric Schlosser that nearly one out of eight workers is definitely working in McDonald's in
U.S. Their employees are always encouraged towards maintaining hygiene and peace. For that
purpose, they are using to sing favourite songs of customers.
Analyse the market
Market is defined as a place where two or more people are gather for the purpose of
exchanging goods and services (Solozhentsev, 2019). Market plays a crucial role for McDonald's
as it is the place where organisation sell their goods and services to their potential buyers. The
success and growth of McDonald's is depending on understanding of market as it involves many
people. People involves such as customers, suppliers, traders, governments, etc. A market is a
combination of institutions, systems, procedures, social relations or infrastructures .Today's
demand of McDonald's is very high as every person knows their name and brand in almost every
country. Their growth rate shows their hard work and the understanding of economics. They
know that how market reacts only because of understanding managerial economics. It is
necessary for an organisation that they should take decision after analyse the situation and
economic growth rate (Chang, McAleer and Wong, 2020). It is found that McDonald's is always
focusing on analysing the market trends and conditions so that they are able to satisfy their
customers needs and wants. McDonald's always trying to understand the consumer behaviour so
that they can produce goods accordingly. In the industry of restaurant, McDonald's has many
competitors which are also doing very well in the market such as Burger King, KFC, Subway,
etc. Day by day the number of firms in this industry is increasing at a fast speed.
It is found that McDonald's have a 62.02% market share in restaurant industry as they are
running their business in competitive way. The reason of this market structure is company has
many competitors in this industry which offer similar products but they are not perfectly
substitutes (Tien and et. al). This is the same situation with McDonald's as they have many
competitors in this industry but other organisations are not able to give perfect substitute to this

organisation. In addition to this market, there are many types of market available in the market.
Some important features of different market structure are mentioned below:
Perfect competition market
Perfect competition is refers to the market where the number of small companies are
large that increases higher competition for each other. They generally sell homogeneous products
and services, free into enter and exit market, and lack price influence. The consumers have full
knowledge of goods and services (Rajawat and et. al., 2020). That's why it become tough for
organisation to increase the p[rices of their products and services. It will reduce their profits
margins. It is identifying that this type of market is unrealistic as it does not exist in real world.
Monopoly market
It is the type of market where a single organisation hold a power to run the whole
industry. There is no competitors available for the organisation. The seller sell products at higher
rates and they does not reduce the prices of products and services. The entry and exit in this

market is not easy for organisations. A single seller holds all the power such as deciding the
prices of products.
Monopolistic market
It is the combination of both competitive and monopoly market that's why it is also
known as imperfectly competitive market. In this type market, the sellers compete and
differentiate their products on the basis of branding and quality of products (Wu, 2020).
Generally price decide on the basis of their competitors price.
Oligopoly market
It is identified that in oligopoly it consists of small number of large organisations which
sell their goods and services in this market. Their goods can be identical or differentiated. Due to
less number of firms, it is found that their strategies are depending on each other.

Above are the mentioned market which are necessary to understand by organisation so
that they can decide where they stand in the market. It is found that McDonald's is the example
of Oligopoly market structure. This is very necessary for a company that they should understand
the market conditions and trends so that they are able to decide what the have to do. It helps in
forecasting the demand of customers and make strategies for growing their business.
Different market structure
There are many types of market structure available in the market in which McDonald's is
considered in oligopoly market. Market structures are defined as the models of market that exist
between sellers and buyers in a market. It has special characteristics of market. Market is
deciding on the basis of competition, and pricing degree (Lissikov, 2019). McDonald's comes
under oligopoly market in which they have few dominant organisations with limited competition.
Oligopolies is the type of market which comes from different kind of collusion that helps to
reduce competition. In this result, it leads to higher cost and products prices for buyers. It is
found that McDonald's is not considered as a monopoly because it is the one the single seller in
the market. It is one of the largest organisations that sell hamburgers and many more products in
the market and that have competitors such as KFC and Burger King. The key of an oligopoly is
interdependence and this can be understood with the help of McDonald's case (Indounas, 2018).
It rely on other organisations' actions. They are able to predict the actions of other companies and
that makes them successful. It is not easy for any other organisation that there are many barriers
in the market which creates difficulties for other organisation to enter into market. There are
some features of oligopoly market are mentioned below:
Interdependence
In this kind of market structure, all organisations are interdependence on each other
during decision making which is the first and foremost characteristics. It is very obvious that if
there are small number of organisations available in the market then their actions are
automatically depend on each others' action (Tsay and Chen, 2019). For example, McDonald's
takes an action that they run their online campaign on social media marketing then it will
automatically gives an impact on other organisations such as KFC and Burger Kings. Both
organisation also take a same step so that they can maintain the level of competition in the
market. This shows that how they are interdependent on each other.
Group Behaviour

Group behaviour is one of the important feature in which an organisation takes any
decision with the consultation of other people. In oligopoly the number of firms can be two,
three, five or more. Due to this behaviours, it is found that McDonald's faces some effect of other
organisation.
Competition
The competition in this market is relatively low as compared to other market but due to
small number of firms available in the market. The customers get attracted towards other
organisation easily if they will take any decision in their business practices. This is necessary for
McDonald's that they should always keep on alert so that they will be able to overcome with this
situation.
Barriers to Entry of Firms
The entry and exist barriers are less in this kind of market in short run. But in long run
business, organisations may be faces barriers in the market (Salas-Velasco, 2021). Some barriers
are economics of scale enjoyed by only some large organisations, requirements of high capital,
control over specialized and essential inputs, exclusive patents and license, etc. These things may
be need in this market while entering in this market.
Lack of Uniformity
Another important feature of this market is lack of uniformity. It is found that generally
the size of firms are different from other organisations in which some of them can be large or
small. This is the situation of asymmetrical and it is very common especially in American
economy.
Existence of Price Rigidity
It is very necessary for organisations in oligopoly market that they should stick on their
prices. If any firms or organisation wants to reduce or may they try then their competitors need to
reduce their prices higher as compare to other organisation. This will leads to price war situation
where no one organisation take benefits. This will be the same situation when the organisation
want to increase their products prices. This is the reason that why no single organisation wants to
reduce the prices of products. Hence, the price rigidity take place.
Nature of the industry in which the firm operates with suggestions
It is seen that McDonald's operate in a oligopoly market structure. As there are less
number of firms present and one has significant on another. The changes in prices of one do not

impact the another firm. It is important to note that the world is dynamic and they operate in food
chain industry. The competition is rising at a rapid rate. It is observed that the firms start their
business in the industry where there are more profits and less barriers to entry. So, in this regard
McDonald's also have various competitors and this shows that they will able to beat the
competitors better (Mohammed, 2018). As they have established strong image in market and this
will help the organisation to attract customers and gain edge over the competitors. They should
focus on their products and services and differentiate them from the competitors. It is necessary
to note that by adding features to product and maintain quality of products McDonald's will be
able to satisfy the customers effectively. As well as in oligopoly slight change can impact the
other players of market. That is not in case of monopolistic market. This will also benefit the
organisation and they will be able to work effectively. The company can expand their portfolio
and enhance the operations in market. They are able to serve more customers and add the
features that are required as no other players can interfere. It is seen that there is freedom of
operation in monopolistic competition. It helps the business organisation to achieve goals and
objectives successfully. As the rate of competition is rising it shows that McDonald's must do
efforts and gain advantage over the competitors.
This is necessary for an organisation that they should understand the market conditions so
that they will be able to take right decision in the market. It is clear that McDonald's is in
oligopoly but now it is identifying that they are come in monopolistic competition. It is necessary
for McDonald's that they should understand the market structure of monopolistic as they have
top grow their business in every structure. It is identified that monopolistic competition is
optimal for McDonald's as they can enjoy many benefits from this market. There are many
benefits that they can enjoy such active business environment in which they can take an active
part that helps to increase the number of customers in the organisation. A company can also
enjoys the customers satisfaction as they will get differentiated and quality products in the
market. Due to higher quality in the products and services, it is found that organisation is able to
achieve their ultimate goals which is customers' satisfaction. Every customers have enough
knowledge of products and services of organisation which becomes a benefit for organisation as
they are able to increase the number of prospective buyers in the market. The current market
shows that McDonald's already have enough number of prospective buyers which can be raise
even if they are coming in monopolistic competition market structure.

Government plays a crucial role in McDonald's business as it is the franchisee which
needs lots of permission for entering into another market. Due to this, it is found that the
government interventions can be increase. This is necessary for organisations that they should
perform their business practices in an ethical and sustainability way so that they will not face nay
negative impact of government actions. But excess government intervention is not good enough
for organisations as they may be face negative impact on this respect. Their transparency can be
disclosed and they will not be able to compete in the market. Due to this, it is suggested to
government that they should intervene in business operations at certain levels so that private
companies cannot disclose their key elements. If it is not possible then it is very obvious
company and country faces many negative consequences. This is the franchisee which needs to
be invest in other countries so that they can run their business at multinational level. So that's
why it is suggested to the organisation that they should not participate in their unnecessary
decisions. They need to participate in those decision which gives an impact on society. For
example, if it is found that McDonald's is increasing the prices of their meals without any logical
reason then it is suggested to government that they should take an action for society. They need
to put some legislation in which company is not exceeding the prices limits and society will not
vegetatively impact.
CONCLUSION
It can be concluded from the above discussion that it is necessary for companies to
understand the market structure and this can be done with the help of understanding material
economic. It helps in describing various types of market structure which are available in the
market. It has different characteristics on the basis of degree of price and competitiveness. There
are generally four types of market structure are discussed in this report that are monopoly,
monopolistic competition, oligopoly, and perfect competition. McDonald's is the example of
oligopoly where the number of large organisations are less and due to this the interdependence
gets increase. This report also discussed the nature of industry in which an organisation operates
their business activities. It also covers some suggestions that how much government
interventions needed in the organisations.

REFERNCES:
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