Market structure influences how an organization behaves according to pricing, supply, barriers to entry, efficiency and competition. More specifically, Applebee’s, a nation-wide casual dining restaurant chain, is an organization whose structure is considered to be monopolistic competition. Monopolistic competition is a structure that has many buyers and sellers who sell products that are similar but not identical. Hence, instead of being a price taker, Applebee’s has a downward sloping demand curve.
Applebee’s is almost like a tiny monopoly because of the differentiation in the products that they sell. Moreover, Applebee’s has some control over their prices but competition tends to dictate the price range for food and beverages. In addition, it’s relatively easy to enter and exit this market without restrictions. Chili’s, T. G. I. Friday’s, Red Lobster, Outback Steakhouse, Olive Garden and Ruby Tuesday’s are Applebee’s main competitors. In grasping market share and maximizing profits, advertising plays significant role in monopolistic competition.
All of these organizations spend millions of dollars in advertising but why? Plain and simple, advertising leads to higher profits. One of the commercials that have Applebee’s has is a 550 calorie meal. In today’s society, consumer are becoming more health conscientious and showing a delicious shrimp and pasta meal for under 550 calories appeals to the consumer’s eye. Now without that commercial, how many people would actually know about this? Definitely, not as many.
In continuing on how advertising plays a hugh role in monopolistic, consider yourself driving down the road with a friend and you want to grab a bite to eat. Are you more inclined to stop at Applebee’s, a clean safe and economical eating environment or a place you never even heard of such as Jim Bob’s diner with the sign out in front of the building falling down who has a short order cook that looks like a guy that should be in ZZ Top? Odds are you would be more inclined to stop at the well known Applebee’s because you are familiar with this organization because of advertising.
Now that Applebee’s has you in the door, think of the extra revenue that is accrued from ordering drinks? If a restaurant buys a bottle of vodka for $10 and is able to get 22 drinks out of that bottle for $3/drink that would make a $56 approximate profit. If you continue the math, millions of dollars are made because it started out with advertising. References Applebee’s. (2010 March). Retrieved March 25, 2010, from Applebee’s website: http://applebees. com