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Category: Business

Autor: reviewessays 11 February 2011

Words: 1375 | Pages: 6

Bose Corporation:

A monopolistic competitive firm

Consumers have many choices in their home entertainment needs. Consumer electronics companies offer many different solutions for their needs and can be found in many brick-and-mortar stores or online. With the rise of home entertainment needs, it is important for these companies to be a leader and an innovator of the latest and greatest technologies at the most competitive prices. Bose® Corporation is one company, along with Sony, Klipsch, Onkyo, and Harmon Industries that creates such solutions in the home entertainment industry. The market structure that they are classified under is a monopolistic competitive market. This paper will provide the background on Bose Corporation and demonstrate that it is participating in a monopolistic competitive market.

Bose Corporation was founded in 1964 Dr. Amar G. Bose, professor of electrical engineering at the Massachusetts Institute of Technology. The interesting story was that it was started by accident. Dr. Bose wanted to award himself a set of speakers for graduating at M.I.T. The set of speakers he purchased disappointed him, and made the effort to create the speakers he envisioned. He believed that lifelike sound was the best sound, much like one would experience in a concert hall. The company established itself with its first speaker, and introduced the 901 Direct/Reflecting® speakers in 1968. It has also led in the home entertainment industry in award-winning products such as the Lifestyle home entertainment system and the Wave Radio.

Bose Corporation’s commitment to research is what fuels the company. A privately held company, all profits are directed to research and providing new and innovative technology. Its philosophy is about the music and not the equipment as the benefit for their customers. The company has also applied its research outside of audio. They have worked with the military, aerospace and medical industries.

Today, Bose Corporation is a privately held company with annual sales of $1.7 billion annually. Other products include automotive audio and suspension systems, noise reduction headsets and products for musicians. They have reshaped conventional thinking in the relationship of size and quality of sound.

Its philosophy is the commitment to research and to develop breakthrough products and technologies that improve people’s enjoyment of entertainment. This is what fuels its growth. They apply the highest scientific inquiry and invent new innovations in sound. Not only have they made strives in audio, they have also developed biomedical testing equipment, electromagnetic automobile suspension systems and switching power amplification.

This paper has cited a few products, but the very first product developed by Bose was the high-power amplifier produced under contract for the U.S. Military for converting battery power to AC power in aircraft and submarines. In 1972, it introduced the first professional speaker for musicians. In the 1980s, Bose introduced the first factory-installed, acoustically customized audio system for individual car models. First introduced in 1986, Bose Acoustic Noise Cancellation Headset® was developed for dramatically reducing unwanted noise, and helps deliver better audio performance for pilots, military personnel and music listeners.

Bose has manufacturing plants domestically in Massachusetts, South Carolina. International plants are located in Ireland and Mexico. It employs a total of 9,500 people domestically and internationally. Bose is found all over the world, and in 1995 opened their first company-owned stores. Today, they have 118 stores all over the world and can be found in major reseller accounts such as Best Buy, Circuit City and Sears.

Unique features of a monopolistic competitive market are similar to that of a monopoly, with few exceptions. The exceptions are that there are many sellers, product differentiation and free entry and exit. Bose competes with companies like Altec-Lansing, Sony, Cerwin-Vega, Harmon/Kardon, JBL, Klipsch, Onkyo, and Polk Audio.

Although these companies appeal to the same set of consumers in demand for audio, their home theater and music solutions are not alike. There are distinguishing differences in features and benefits for each company’s audio solution. Another feature of product differentiation, Bose has a distinct brand image. Whether you are a novice or an audiophile, Bose is known for one distinct product – the Wave® Music System. This system has been seen in TV shows, movies and is heavily advertised by radio and music personalities.

Bose has to be successful in marketing such a system that has very few buttons and can charge almost double of a conventional radio. It is difficult to perceive sound, and what may sound great to one person, may not for another. It is mainly through word-of-mouth, and many advocates of this system bring more curiosity about Bose and therefore able to maintain its market share.

Brand image is a characteristic that only can be considered truly monopolistic. However, these companies still competes with product substitutes. Bose, as with other companies, has many advocates and purchase systems based on brand name alone. This supports what was discussed regarding production differentiation and the Wave Music System. This system has brought many advocates back and new customers to Bose. The interesting factor would be the price, and when there is strong brand loyalty, it is less likely for customers to search for substitutes. In the case of Bose, its prices do not ever change. Based on the definition of brand loyalty, if price did change, it would seem unlikely for customers to find a substitute.

It is possible for an entrepreneur to develop and manufacture a speaker from their garage and market them. All they would need is an innovative idea, materials and workspace, and they can develop a new sound system that may find a niche. Whether it succeeds or fails, it’s almost that easy to get in the market of speakers and just as easy to get out. This is the competitive aspect of a monopolistic competitive market structure. It was true in the case of Bose Corporation, where before it became the company that it is today, Dr. Bose developed his own speakers in the garage, and today has a 25%1 market share in this industry.

Unlike a perfect competition, a monopolistic competitive market has excess capacity and markup. With excess capacity, a monopolistic competitive firm tends to be less efficient than a perfectly competitive firm2. This is why these firms attract buyers with advertising; as each new firm enters the market, the demand curve is shifting the left and prices become more elastic. With markup, price exceeds marginal cost which that extra unit sold means more profit to the firm.

With a perfect competition, the name of the game is price. As price lowers for one firm, consumers tend to switch brands and go with the better priced system. In an imperfect competition (monopolistic competitive markets), it participates in non-price competition – advertising. When firms offer differentiated product and charge prices over marginal costs, the firm has an incentive to advertise to gain market share.

Advertising is a way for a consumer to make an informed choice based on the advertising provided to them by these companies. This increases competition by offering a greater variety of products and prices. Companies, most certainly, spend a great amount of money and resources to get their name in the market, and this can be perceived by the consumer as a sign of quality of the product they are marketing. It should, since they are putting their name on that item; their entire reputation can be made or broken by that item.

Many of the companies in the consumer electronics industry have stayed in competition because they have been offering the consumer high-quality, innovative, and fun products. Bose has been a participant on the monopolistic competitive market for 30 years. The corporation relies heavily on brand image and brand loyalty and it continues pursuit of greater market share through advertising to help bring advocacy in their company and its products.


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