...What is a monopoly? A monopoly is an enterprise that is the only seller of a good service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. (Stigler, 2013) What is an Oligopoly? Oligopoly is an industry can only have a handful of large firms; it makes it very difficult for new firms to enter into the industry. The firm products can be similar or different, but the action of one firm will impact others in the oligopoly. (Wessels, 2000) What is a Cartel? A Cartel is a group of firms in an oligopoly that get together and agree to cooperate to the detriment of consumers and other firms. The benefit of cooperation is that the oligopolists can charge higher prices to consumer end up with less than they otherwise might have consumed. (Wessels, 2000) Example of a Monopoly: Examples of monopolies includes Microsoft and Windows, DeBeers and diamond, your local natural gas company. Individual restaurants and other products that enjoy brand loyalty in otherwise competitive markets will choose prices and output just like monopolists do. (Monopoly) Phone companies are an example of the breakup of a firm with monopoly power. AT&T was forced to break into a number of local phone companies back in 1982, with several regional operating companies such as bell south etc. Today, AT&T and Verizon control most of the...
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...SUMMARY OF REPORT I. Introduction to Four Market Structure II. Comparative Characteristics of Four Market Structures III. Four Market Structures a. Pure Competition i. Characteristics ii. Demand Curve iii. Examples iv. Summary b. Pure Monopoly v. Characteristics vi. Demand Curve vii. Examples viii. Summary c. Oligopoly ix. Characteristics x. Demand Curve xi. Examples xii. Summary d. Monopolistic Competition xiii. Characteristics xiv. Demand Curve xv. Examples xvi. Summary FOUR MARKET STRUCTURES Market structure is the selling environment in which a firm produces and sells its product The preceding chapter on the theory of production and cost made us understand the behavior of producer towards an efficient use of productive inputs because the use of inputs is associated with economic cost be it explicit or implicit cost. Efficient use of resources means proper identification of the use of the land, labor, capital and entrepreneur. These should not be underused as in 1st stage production or overused as in the 3rd stage of production, so that the cost associated to the production level can be minimized. This chapter examines a broad range of markets and explains how the pricing and output decisions of firms depend on market structure and the behavior of competitors. To determine...
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...behavior throughout the 1990’s. 19 States complained against Microsoft for practicing monopolistic behavior, following the investigation, the case went to trial. The following paper discusses the case against Microsoft, than talks about the monopoly market structure, and how it can affect society. United States of America V. Microsoft Corporation Microsoft Corporation, a multinational software corporation, was investigated for anti-trust behavior throughout the 1990’s. Complaints to the Federal Trade Commission (FTC), sparked an investigation on Microsoft corporation for using market power to monopolize web browsing software, which may prevented competing web browsers to gain marginal revenue. (Kleiner, 2011) In 1990, the FTC started investigating the Microsoft Corporation for monopoly (Brown, 1993), though in 1993 the FTC could not reach a conclusion if Microsoft practiced anti-trust behavior and further dropped the case (Keho, 1993). In 1994, The Department of Justice (DOJ) reopened the case, which resulted in a settlement between the complainants, the DOJ and Microsoft Corporation (U.S. Department of Justice, 1995). In May of 1998, 19 state plaintiffs and the DOJ filed a lawsuit against Microsoft, accusing the corporation for being a monopoly market structure by destroying competing threats posed to Microsoft. The company was accused for bundling their software to include with new computers, while competitive corporations offered their software separately. Microsoft was further...
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...Differentiating Between Market Structures ECO/365 April 13, 2015 Benjamin Zuckerman Differentiating Between Market Structures Coca-Cola Company is one of the world’s leading soft drinks manufacturers. Since its creation, the company has been growing constantly. Today Coca-Cola manufactures more than 500 brands of products sold in more than 200 countries all over the world. Coca-Cola’s main competitor is Pepsi. Therefore, the two companies make up a duopoly where only two companies dominate the market. Both companies sell soft drinks. They also sell homogeneous products so that they can be able to control the price in the market. Coca-Cola Company depends upon the demand curve to adjust the price of its products. Specifically, the company pays great attention to the state of the kinked demand curve. To attract more customers, Coca-Cola uses cut-throat competition to outdo its main competitor: Pepsi (Henry, 2012). Since its inception, Coca-Cola’s main goal has been to emerge as the world’s number one provider of quality branded beverages. The duopoly enables Coca-Cola to use a low-price strategy to maximize its profits. In particular, during holidays, the company uses cut throat price competition to increase its sales and profits. The duopoly gives Coca-Cola the power to raise its product price above the market price without worrying about losing its customers. The duopoly that Coca-Cola is a part of undermines new competitors from entering the soft drinks market. What...
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...firm in the market”. (Thomas, Maurice 2010, p. 561). An oligopoly is described in the book as a “few relatively large firms, each with a substantial share of the market and all recognize their interdependence.” (Thomas, Maurice 2010, p. 512). Meaning, direct competitors understand their internal decisions will affect not only their profits and placement in the market, but also greatly their competitors. Price cutting or expensive advertisement plans will affect the firm’s profit margins, but also with strategically place the competing firm in a position to react. Even in small towns or multiple businesses in the same industries from restaurants to retail, need to be aware of how their decisions affect their own business, but also their market. Decisions should be systematically made and will economically affect a business along with the anticipation of competitor’s reaction to their precise move. Oligopolies are everywhere and can be detected from wheat that is managed by large agriculture groups to cell phone companies. Oligopolies How do firms in the industry compete? Managers within interdependent industries make decisions that will affect not only their firm, but they must consider the reaction to their competitor as well. Without this consideration, the rival’s reaction will certainly affect his or her own sales and profitability due to that decision, which may or may not be intended. An oligopoly can be formed when a selected few companies dominate a market...
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...CHAPTER 7
THEORY OF FIRMS AND MARKET STRUCTURE I : PERFECT COMPETITION AND MONOPOLY
PREPARED BY : SITI NORDIYANA ISAHAK
THEORY OF FIRM
• FIRM – an organization/ institution that combines all resources for the production of goods and services. • INDUSTRY – a group of firm that produces or sells similar product in the same market. E.g : manufacturing industry such as textile, soaps, foods, servicing industry and so on. • Firm’s objective – maximize profit – attain production efficiency whereby cost is minimized TOTAL PROFIT = TR – TC if TR >TC → Profit (+ve) if TR
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...Game theory is the method utilized to understand the behavior of oligopolies or market situations in which each of a few producers affects but does not control the market. Unlike monopolies in which a company has complete control of the entire supply of goods and/or services in a certain market, oligopolies do have competitors with in the market. However, unlike monopolistically competitive firms and perfectly competitive firms, firms within a oligopolistic frame work have so few competitors that marketing and pricing decisions made by one firm has a very unique possibility of affecting all the other firms within that market segment. In essence, competitors must take their competitors' possible reactions and responses into account when making decisions. The table below shows the Coke and Pepsi Payoff Matrix with respect to price competition. Both companies have two fundamental strategies: charge an elevated or above market price or a minimal or below market price for its products. Both companies have the possibility of obtaining a big payoff by charging a minimal price while its competitor charges an elevated price, but both companies know that if one of them cuts it price the other will quickly follow suit, resulting in a smaller payoff for both. The resulting equilibrium is both companies charging a high price and engaging instead in non-price competition. Coke vs. Pepsi Payoff Matrix Pepsi charges high price Pepsi charges low price Coke charges high price Coke...
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...OPEC and the economics of cartel Presented by Sanjay Gupta Lakshmi Varma Lakshmi Nair Shibin T Renjith Outlines What is OPEC? 1. 2. 3. Oil – A basic necessity OPEC (Information on OPEC) OPEC Side Line Objectives Our main premise of this Presentation is to derive economics concepts from OPEC and the economics of cartel. We will also cover briefly micro economics concepts – Demand and Supply, market structure & pricing decisions and related concepts. 2. OPEC is an epitome of Oligopoly 1. Oil – Life Blood of Indian Economy OIL - One of the life bloods of our Indian economy is oil. The impact of oil in today’s Indian economy has been witness by consumers many times. We have seen how human spending and travel got affected as the price of oil fluctuates. In contrast almost all energies are generated using oil, to mention few; Cars, Trucks, Indian railways, Plane, use oil in order to run their engine. Therefore if oil supply disturbed for one day we can imagine how the Indian economy can be affected greatly. OPEC - Introduction About OPEC (pronounced oh-peck)- Organization of the Petroleum Exporting Countries - Organization of the Petroleum Exporting Countries, established in Bagdad, Iraq in 1960. OPEC as a cartel, manipulate supply of oil in the market, in hopes of keeping prices, and profits, high. It is comprised of 12 members –Algeria, Angola, Ecuador, Islamic Republic of Iran, Iraq, Kuwait, Socialist People’s Liberian Arab...
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...Session Plan: Managerial Economics Text Book: Pindyck, Rubinfield & Mehta, 7th Edition |Session Number|Topics Covered |Identified Cases |Readings |Source |Date | | |Fundamental Problems of An Economic System: Scarcity and Efficiency | | |1 & 2 |Introduction to Managerial Economics, Micro and Macro |1. Switzerland, Cuba and India: The Troika of Economic Problems in Three |Chapter-1 |CDC | | | |Economics |Economies |(Pindyck) | | | | |Production Possibility Frontier And Curves | | | |15-06-‘11 | | | | | | |17-06-‘11 | | |Partial And General Equilibrium | | | | ...
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...Introduction Transportation has evolved tremendously in today’s world. If someone does not have a way of transportation, there is a taxi service available and now a business called Uber. Uber is a company that is available to consumers to request a ride and pay via the mobile app. Uber is available in more than 50 countries and is expanding. This seemed to be very convenient to the consumers because they can go anywhere and even reserve a driver for a day for an individual price. Market Structure There are four basic types of market structure. They are as followed; Perfect Competition, Oligopoly, Monopoly, & Monopsony. Uber is fundamentally a marketplace, where supply is controlled not by the company but by the legion of independent contractors and transportation providers with whom they work. (Gurley, n.d.) That being said, their market structure is an Oligopoly because Oligopoly has to do with several large sellers who have some control over their prices. Elasticity of the product Price elasticity is imperative. Uber’s analysis and research have shown that both the supply curve and the demand curve are highly elastic (Gurley, n.d.). Uber lets the customers do the talking since the goal is to please them. Price elasticity tells how much of an impact a change in price will have on the consumers’ willingness to buy that item (Tuck, 2015). If the price is too high for the consumer, then they will most likely not use the service. If the price is cheap enough to the consumers...
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...Industry, Competition and Strategy Industry • Number of Sellers • Degree of differentiation Pure Monopoly • Only one Provider Unregulated monopoly Regulated monopoly Oligopoly • Small no. of Firms Providing Service • Pure Oligopoly ( Less/ No Differentiated)- Steel • Differentiated Oligopoly ( More Differentiated)Camera, Overhead projectors Monopolistic Competition • Many Competitors • Ability of differentiate offering is high - Hotels Pure Competition • Many Competitors • Similar Offering • Scope and basis for Differentiation is low - Cereals, Cigarette, Tea, Biscuit Drivers of Industry’s Competitive Structure • • • • • • Entry Barrier Mobility Barrier Exit Barrier Cost Structure Degree of Vertical Integration Degree of Globalization Entry Barrier • • • • • • • Capital Requirements Economies of Scale Patents Licensing Requirement Location Raw materials Intermediaries Exit Barrier • Legal and Moral Obligation to Customers, Creditors, Employee • Govt. Restrictions • Low Asset Salvage Value • Lack of Better Opportunities • High Degree of Vertical Integration Mobility Barrier • Barrier when Firm Tries to go Upward, Enter More Attractive Segments ( AirAsia & Vistara; Permission to operate internationally) Cost Structure • Which Component is the major Cost Centre -Manufacturing - Distribution -Advertising -Licensing and any other Degree of Vertical Integration • Flexibility in Operating...
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...one customer control all the demand, the "Wal-Mart" effect) Capabilities and expertise Distribution channels used Cost structure (mainly fixed vs. variable - is it better to have higher fixed cost with lower variable, or vice versa. High fixed cost = barrier to entry.... compare to industry, often insightful) Investment cost (optional: only if case involves an investment decision) Intangibles (e.g., brands, brand loyalty) Financial situation Organizational structure (optional: e.g., is team organization in conflict with how customers want to do business. Ex: We're organized by product line, but customers want one point of contact across all product lines) Nature of product (think out loud about the product, it's benefits, why someone would buy it) Commodity good or easily differentiable goods (could company increase differentiation) Identify complimentary goods (can we piggy back off growth in compliments or near compliments?) Identify substitutes* (are we vulnerable to indirect competitors namely substitutes?) Determine product's lifecycle (new vs. almost obsolete) Packaging (optional) - what's bundled, included (ex. Razor vs. razor blades, with w/o service contract... can change in packaging make product more likely to meet needs of specific customer segments.) Competitor Concentration* & Structure (monopoly, oligopoly, competitive, market share concetration) Competitor behaviors (Target customer...
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...a horizontal line at the market price. Another implication is that a firm will produce only when it is profitable to produce, otherwise it will stop the products. * Characteristics of a Perfectly Competitive Market * The Law of One Price * Price Taking Behavior * Free Entry * Accounting vs. Economic Profit * Marginal Revenue * The Firm's Short Run Supply Curve * The Shut Down Price * The Short Run Market Supply Curve * Short Run Perfectly Competitive Equilibrium * The Firm's Long Run Supply Curve * Long Run Perfectly Competitive Equilibrium * The Long Run Market Supply Curve * Pecuniary Effects * Economic Rent * Producer's Surplus 1. Perfectly Competitive Market Characteristics of a perfectly competitive market/industry: * Numerous buyers and sellers * Homogeneous products * Consumers have perfect information about prices * All firms, incumbent and potential entrants alike, have equal access to resources Implications of these characteristics: * Price-taking firm * Law of one price * Free entry 2. Profit-Maximization by a Price-taking firm (1) Economic profit vs. accounting profit Accounting...
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...Market System Imagine a life in which every single action that we made was basically owned and operated by the government. Now, imagine the opposite. Imagine that you are free to make the choices that you want without having to give your rights up to the government. I know, at times, we feel that America is truly run from the government and we have no choice; but, compared to other countries, America has a lot of freedom when it comes to the rights of the individuals. The economic system that the United States uses is capitalism. Capitalism is the economic system that is also known as the free market system, and is based off on private ownership, economic freedom, and fair competition. Other countries, however, use socialism as their economic system. Socialism is based on the principle that the government should operate some of the key enterprises that affect the welfare of the public. Finally, some countries choose to use communism as their economic system. Communism is based off of the principle that the government should operate and direct almost all enterprises. Clearly, these three economic systems are very different in the way that they operate. In this paper, I am going to compare and contrast the three types of economic systems: capitalism, socialism, and communism. Capitalism, also known as the free market system, is the economic system used by the United States. Because of capitalism, we have what are called fundamental rights. Fundamental rights are rights that...
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... 16th ed. McGraw-Hill 3. Economics Anderton, A., Causeway Press Ltd. Grading Individual Assignment 10 Group Assignment 20 Mid Semester Exam 30 Final Examination 40 For every day that an assignment is late 10 % will be deducted up to a maximum of 3 days. After that assignments will not be accepted. Aim of the subject The aim of this subject is to expose students to some of the key principles of economics theory and their applicability to economic and social problems. At the end of the course, candidates should have attained an understanding of microeconomics and in particular the problems of resource allocation. 1. Introduction Definition of Economics Microeconomics vs. Macroeconomics Positive vs. normative economics Economics as a science Scarcity and wants Opportunity cost. Production Possibility Frontiers Factors of Production 2. Demand, Utility and Supply Demand - price and income Distinction between a movement along and a shift of the demand curve Elasticity of demand Inferior and griffen goods Supply price and cost of production Elasticity of supply Determinants of supply 3. Price Mechanism and Allocation of Resources. Interrelationship between demand and supply Equilibrium price and output Interrelationship between markets Compliments and substitutes Government intervention in the market - Maximum price, minimum...
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