Revised Business Proposal
February 13, 2012
Revised Business Proposal
Thomas Money Service Inc. began its operations in 1940 as a consumer finance company granting small loans for household needs. By 1945 TMS had expanded its services to include business loans, business acquisition financing, and commercial real estate loans. The following year, the company branched out into equipment financing through a subsidiary named Future Growth Inc. (FGI). The company’s decision was made at just the right time. The end of World War II brought about an increasing demand for construction and forestry equipment and paved the way for the company to purchase an equipment ...view middle of the document...
FGI operates in a differentiated oligopoly as characterized by the barriers to entry and the number of domestic and international sellers that manufacture essentially the same construction and forestry equipment products. In differentiated oligopolies, competitors typically engage in non-price competition and each firm is a “price maker” meaning that they can each name their price and output levels to maximize their profit. However, each firm must also consider the reaction of its competitors to any changes made in price and output. Differentiated oligopolies also rely heavily on advertising but, as before, must consider how its competitors will react to increased levels of advertising. This consideration for the competitors’ reaction is based on the mutual interdependence present in this type of market. A firm will choose its price, output and advertising strategy in such a way as to maximize profits and expand the business.
Barriers to entry
Differentiated oligopolies can create barriers to entry into the market based on economies of scale, advertising, and the capital requirements needed to enter the industry. As a manufacturer of construction and forestry equipment for over 60 years, FGI has a competitive advantage over newcomers who will be unable to match the company’s price on equipment. Likewise, FGI is an established company with the necessary equipment already in place. New firms would need to invest heavily in plant and equipment thereby increasing their cost and price.
Absent at FGI is an aggressive advertising strategy that is prevalent in differentiated oligopolies and which could create an additional barrier to entry into this market. Recently, the company has decreased its advertising and opted to have one commercial during the Super Bowl and a limited number of them during other sporting events. Because the company needs to be cautious of how its competitors will react to increased advertising, FGI would do well to invest in informative advertising where factual information about product attributes can be provided to consumers (Hamilton, 2009). Advertisements that focus on informing consumers about product specifications can increase product sales. Additionally, informative advertising can stimulate the exchange of products to new customers and facilitate better matches between existing customers and brands (Hamilton, 2009). Advertising can become costly so FGI needs to research where their advertisements would benefit them the most. If the company can attain better results by advertising more often versus airing one commercial during the Super Bowl, it should focus on the quantity of its commercials and advertisements.
Product differentiation can also give FGI a competitive advantage over its rivals. By focusing on the unique aspects of the company’s products and services, FGI can create a sense of value and differentiate itself and its products from those of the...