Markets: A Valvoline Profile

Franchise Valvoline Instant Oil Change operates in a capitalistic market. Most directly, this market is characterized slightly as an oligopoly, but leaning towards a perfectly competitive environment due to a number of factors. Firstly, as obtaining a franchise requires an investment of around $178,425 - $1,989,000, the base price presents a substantial economic barrier for entry (admittedly, this may not amount to much for a successful entrepreneur) and the service products remain relatively similar; Heakal (2014) highlights these factors as characteristic of an oligarchy (p. 1). However, Valvoline also operates at a certain ceiling of leverage at which point they will begin to lose customers if they continue to raise prices uninhibited; with many similar oil change companies in direct competition with one another, Valvoline works in an environment with many substitutes of various natures—certain characteristics of perfect competition (Heakal, 2014, p. 1). Ultimately, many options exist.

As such, Valvoline operates in an environment with imperfect competition. Chamberlin and Robinson describe these as market structures with a large number of sellers who cannot easily influence the market selling a range of products that are somewhat similar to each other (Reynolds, 2005, p. 4). Valvoline competitors include Jiffy Lube, Pennzoil, Express Oil, Mr. Lube, Pep Boys, Midas, Firestone, Meineke, Wal-Mart, and NTB, among others. Together, these companies set an acceptable fee for routine vehicle maintenance.

Valvoline could employ a number of strategies in order to increase its market power. One should include a great focus on customer service that minimizes the effects of homogeneous output—people should see Valvoline as a place where technicians are passionate about vehicle maintenance, and keeping employee wages above minimum wage is a way to keep them passionate. This would create secondary demand as customers would likely be drawn in from other competitors. If successful, the technique could create demand that tolerates higher prices.

References

Heakal, R. (2014, January 1). Economics basics: Monopolies, oligopolies and perfect competition. Investopedia. Retrieved from http://www.investopedia.com/university/economics /economics6.asp

Reynolds, R. L. (2005, January 1). Firms with "market power". Basic microeconomics: An outline. Retrieved from http://web1.boisestate.edu/econ/lreynol/web/PDF/short_13_Market _power.pdf