What Is a Market Structure Analysis?

A market structure analysis is a systematic review of factors that determine the level of difficulty in entering or expanding into a specific market area. The term market structure describes the economic environment in which a firm operates. Also referred to as a market entry analysis, this review assesses the capacities, weaknesses and strengths of competitors, as well as measuring the potential for access to supplies. Other factors usually considered in a market structure analysis are the level of product or service substitution that may come into play, and expected sales that may materialize from an entry into a new market.

The prospects for a successful entry into a new market are usually dependent upon both internal decisions by a business, as well the overall competitive playing field. Market structure analysis focuses research on the latter area, in an attempt to measure the statistical probability of success or failure. Data that is gathered in the analysis typically looks at the potential for sales, and the difficulty and level of investment required for successful entry into the market niche. The level of access to those supplies needed for the business activity is frequently assessed as well.

Quantitatively measuring existing competitors active in the market niche is a key aspect in a market structure analysis. This may require some detective-style work, for example, such as combing through public data on key competitors. Transcripts of earnings calls and data consisting of a competitor’s sales figures may often yield insights into key aspects of a market’s structure.

Reliability and access to supply chains is a key component of a market structure analysis. A particular competitive arena may offer a high level of access to a new entrant in a market niche. Yet, if crucial supplies happen to be controlled by a cartel or by a limited number of companies, such factors may seriously impede prospects for a successful market entry.

Another factor often considered in an analysis is the willingness of consumers to substitute one similar product offering for another. If product loyalty is high among a major player in a particular market niche, then price wars can ensue when new contenders enter the market. Numerous examples exist of how product loyalty or lack thereof can affect a company's success in entering a market. As a factor in a market structure analysis, brand loyalty is usually considered a critically important factor for a new market entrant to assess.

Factors in a market structure analysis are dynamic, as various players in the marketplace expand or contract, or enter or leave the arena. These factors continually affect the cost of entering or expanding in the marketplace. As a result, such analyses are sometimes conducted at regularly scheduled intervals.