Fragmented market

Fragmented market
See also
Competitive position Preventive pricing strategy Price war Price discrimination Focus strategy Market orientation Monopolistic competition Imitator strategy Composite demand

A fragmented market is one in which there is no single producer with a majority market share. It is made up of many small producers, each with a relatively small market share. This type of market is typically found in industries where there are many small producers and few large ones. Examples include the retail industry, the automobile industry, and the hospitality industry.

In a fragmented market, competition is often quite fierce as each company competes against the others for a share of the market. Prices are typically driven down as the competition heats up, resulting in lower profits for each company. Additionally, there is often a lack of product differentiation, as products become increasingly similar as each company seeks to out-compete the others.

One benefit of a fragmented market is that it can provide more choice to consumers. With many small producers competing for market share, consumers have the ability to choose from a wide range of products and services. This can also result in innovation, as companies compete to create new and better products.

Overall, a fragmented market is one in which there is no dominant producer and competition is fierce. This type of market can provide consumers with more choice and can spur innovation, but it can also drive down profits for individual companies.

Example of Fragmented market

A fragmented market can be seen in many industries, including:

• Retail: The retail industry is highly fragmented, as there are many small and medium-sized retailers competing for market share.
• Automobile: The automobile industry is also highly fragmented, with many small and medium-sized automakers competing for market share.
• Hospitality: The hospitality industry is made up of many small and medium-sized hotels, restaurants, and resorts, all competing for market share.

Overall, fragmented markets are found in many different industries, and each industry has its own unique dynamics. However, the common theme is that competition is usually fierce and prices are driven down as a result. This can result in lower profits for companies, but also provide consumers with more choice and spur innovation.

Formula of Fragmented market

${Fragmentedmarket}={\dfrac {\text{Number of small producers}}{\text{Number of large producers}}}$

Is Fragmented market useful?

Fragmented markets are most useful when companies are looking for a competitive advantage in industries where there are many small producers and few large ones. This can be beneficial because it can provide consumers with more choice and can spur innovation, helping companies to stand out from their competitors. Additionally, fragmented markets can be used to create a niche market, allowing companies to target specific customer segments and tailor their offerings to meet their needs.

For example, a company in the hospitality industry can target a particular demographic, such as business travelers, and create a product or service that meets the needs of this segment. By focusing on this segment, the company can create a product or service that is tailored to their needs and differentiate itself from its competitors.

Types of Fragmented market

• Monopolistic Competition: This type of fragmented market is made up of many producers selling similar but differentiated products. Each producer has some market power, as they can set prices and differentiate their products to some extent.
• Oligopoly: This type of fragmented market is composed of a few large producers and many small producers. In this type of market, the large producers often have some market power, while the small producers are largely price takers.
• Perfect Competition: This type of fragmented market consists of many small producers, each selling an identical product. Prices are determined by the market, and each producer is a price taker.

Steps of Fragmented market

A fragmented market is one in which there is no single producer with a majority market share. It is made up of many small producers, each with a relatively small market share. This type of market is typically found in industries where there are many small producers and few large ones. The following are the steps of a fragmented market:

• Step 1: Establish a presence in the market: The first step in establishing a presence in a fragmented market is to ensure that the products or services being offered meet the needs of the customers. Companies must develop a strategy to distinguish their products or services from those of their competitors, while still offering a quality product or service at a competitive price.
• Step 2: Develop a competitive advantage: Once the company has established a presence in the market, the next step is to develop a competitive advantage. This may include differentiating the product or service, offering better customer service, or taking advantage of economies of scale.
• Step 3: Expand reach: Once a competitive advantage has been established, the next step is to expand the reach of the company. This may include increasing the marketing budget, expanding into new markets, or developing relationships with distributors or retailers.
• Step 4: Adapt to changing markets: Finally, companies must adapt to the changing markets in which they compete. This may include introducing new products, adjusting pricing strategies, or taking advantage of new technology.

Advantages of Fragmented market

The advantages of a fragmented market include:

• Increased choices for consumers: With many small producers competing for market share, consumers have access to a wide range of products and services.
• Innovation: Companies are motivated to create new and improved products in order to out-compete their rivals.
• Price competition: Low prices are often a result of the intense competition in a fragmented market.

Disadvantages of Fragmented market

The disadvantages of a fragmented market include:

• Low profits: With intense competition and low prices, individual companies may struggle to make a profit.
• Lack of product differentiation: Products become increasingly similar as producers compete to out-do each other.
• Difficulty in achieving economies of scale: Small producers may struggle to achieve the economies of scale enjoyed by larger producers.

Limitations of Fragmented market

Fragmented markets have several potential limitations. First, they can be inefficient, as competition between many small producers can lead to duplication of effort and resources. Second, they can be difficult to manage, as each company is operating independently, making it difficult to coordinate efforts. Third, they can be unstable, as the market can quickly shift due to the actions of any one company. Finally, the lack of a dominant producer can make it difficult for new entrants to gain a foothold in the market.

Overall, a fragmented market can offer both benefits and drawbacks. Consumers may have more choice, but the market can also be inefficient, difficult to manage, and unstable. Additionally, the lack of a dominant producer can make it difficult for new players to enter the market.

Other approaches related to Fragmented market

Fragmented markets can also be approached from the perspective of economies of scale. Economies of scale are the cost advantages that businesses can obtain from increasing their scale of production. In a fragmented market, the lack of a dominant producer means that businesses are unable to achieve the same cost savings that come from economies of scale, resulting in lower profits for each company.

Additionally, fragmented markets can be approached from the perspective of pricing power. Pricing power is the ability of a company to charge a higher price for its products than its competitors. In a fragmented market, the lack of a dominant producer means that companies are unable to achieve the same pricing power, resulting in lower profits for each company.

Overall, fragmented markets can be approached from the perspective of economies of scale and pricing power. The lack of a dominant producer results in lower cost savings and pricing power, resulting in lower profits for each company.

Suggested literature

• Dong, M. C., Ju, M., & Fang, Y. (2016). Role hazard between supply chain partners in an institutionally fragmented market. Journal of Operations Management, 46, 5-18.
• Babus, A., & Parlatore, C. (2022). Strategic fragmented markets. Journal of Financial Economics, 145(3), 876-908.