Unity Competitive concentratedmarkets
3.4.1Marketstructures
searangeofmarketstructures
marketstructure characteristicsof a market that determines firm behaviour conduct
numberoffirmsk behaviourof firms
structure performance inmarket in themarket
profitability
revenue
P
4marketshare
spectrum monopolistic elastic D
competition
oligopolies
2extremes
petition
Pettectcom imperfectcompetition
Monopolies Q
lowerbarriers toenterymore consestablelessmarketpower
moreefficiency
how to distinguishbetween different market structures
numberoffirms in the market TN tcompetitiveness
degree of productdifferentiationPDitteventiation t competition
perfectcompetition homogenous differentiatedusingpricebranding quality attestingXED
monopolies homogenousproducts
ease of entryinto the market
thisis thenumber degreeof thebarriersto entry BTE
degree depends on howlongexpensive will it be for new entrant to establishitself in market at comp
andwhethertheycansucrestally joinmarket
BTEpreventnewfirms enteringthe market profitabily which t producersurplus as it means that produceus can
charge higherprices soincentivetoproducer
TBTE t competition
theyallowincumbentfirms firmsalreadyin to make supernormal profitsbeforenewentrants enter
competetheseprofitsaway
examples ofBTE
1BrandLoyaltymakesdemandmoreinelastichencebarrierhardfor newfirmsto
gaincusloyalty
2Economiesofscale hardertoreachminimumefficientscale of production sooperates at higherpointon avgcostcurve passedas t
pricessomeEosonlyavailable tofirmsoperatingon largescale
3 Havingstrongreputation
4 Pricewar aggressivepricetactics predatorypricing drivecomp out
,3 4.2Theobjectivesoffirms
profit importantobjective howeverthere'sotherobjectives
objectives atteahowfirmbehaves
1 PROFIT
differencebetween te te rewardenterpreneursyieldfromrisktaking
incentive to takerisks usingFop's to createbrandnew products development of newtechnologies toimproveproduction
process benefitseconomy TLRgrowth job creation
profitmaximizingOccurswhen Mc MR
assumptionthisis objective ofprivatebusinesses in marketeconomy
because
shareholders largerdividend
employees t wages
retainedprofitit cheapsourceof financeratherthan loanChirexpensive investment tip andmacrobenefits n s R 42growth
creatingjobsimproving internationalcompetitiveness ta D
anykeentoprofitmaximise morelikely to have se profitmaximizationas anobjective torecieverdividents
444
keepshareholdershappysimpasthey arefundingthe enterprise
lowerprices choir consumersurplus
because
profitmotivated businesseswillalwayskeepcostslow revenueshigh implying no waste inproduction ensuringconsume
SRUsLR
PMinLRsometimesmeanssacrificingprofitsinSR
firmmayaimtomaximisesalestrevtotems in s r gainme tomake supernormal profitsinLiz
EOS costst Mess inLR easierto makeprofit
evaluation
1 inreality knowledge of MR Mcmaybeimpertea hard for firms to be profitmaximizershoweverevenit not producingat
whereMR Mc idea ofPMstillholds
2 makinglargesupernormalprofits could signalinvestigationbyregulatoryauthorities becausevery t profitsmay
bedueto excessivepricingbeyondme exploitation of consumers monopolybehaviourssignals regulatorybodies
toinvestigatethe business storied pricereduction Impworkconditions greenermachinery TI t T IOP
3 PMisn'tcurrently bestbusinessstrategy as they may want to t market share quickly Hoodmarket withproducts
develop BL orbenefitfromgreater Eos all requiringdifferentobjectivesto be pursued atleast in the SR
ulonlybenefitsmanagers stakeholders not employeesconsumers environment eh
otherobjectives
2 SURVIVAL
partilularly for newfirms
shorttermobjective
, duringperiodsof economia decline eg 2008 financial crisis when consumer spendingplummets fir
usuallyhave survival as objective until theres EG again
sofirmsmay aim to sell as much aspossible to keep their market position even itit's a lossin the Sk
thisobjectivecan d overtime aslongas significantlosseshaven'tbeen made upon entry
3 GROWTH A firm size
Why could be to takeadvantages of Eos growth T output t unit cost easier to reach MEs Teos
suchas riskbearing spreadrisks over large number of investors and technical
I
Would t averagecosts in LR t profitability
largefirmsmoreable toparticipatein R D A competitiveness Tetticiency inLR
how
expand productrange
merge takeover existingfirms
4 increasing market share
TMI helpsAchance ofsurvivinginmarket achieved bymaximizingsales
eg amazontried tm s in e reader market bytrying to sell as many kindles as possible
In SR loss butLiz gainedcustomer
loyalty and now are a
leadinge readerproducer
5 Corporate social responsibility
operatingin a way that bringsbenefit to society butwhilealsomakingsupernormal profits
environmentally friendly byusing sustainableresources
supportinglocalbusinessesbyusingsuppliersintheirregion
payingworkers abovestandardmarket rate
Timage t sales Marketingpower t profits utilityboost to employeesfromdoing somethingsocietallygood
Others
Society
environmental
ethicalwherethere are philanthropicowners
managerialforpersonalgains luxurycars holidays
workerwelfare
profitsatisticingsacrificeprofitsto satisfyasmany stakeholders aspossiblepmonlybenefitskeepstakeholders managers share
hold
harmingotherslikeworkers Nw consumersctp environmentalgroup sobusinesseswhoaimtoPs purposefullytolevelor supooh
to satisfyneeds wants of all stakeholders topreventcostly futuredisputes
Objectives of firms influence its behaviour
3.4.1Marketstructures
searangeofmarketstructures
marketstructure characteristicsof a market that determines firm behaviour conduct
numberoffirmsk behaviourof firms
structure performance inmarket in themarket
profitability
revenue
P
4marketshare
spectrum monopolistic elastic D
competition
oligopolies
2extremes
petition
Pettectcom imperfectcompetition
Monopolies Q
lowerbarriers toenterymore consestablelessmarketpower
moreefficiency
how to distinguishbetween different market structures
numberoffirms in the market TN tcompetitiveness
degree of productdifferentiationPDitteventiation t competition
perfectcompetition homogenous differentiatedusingpricebranding quality attestingXED
monopolies homogenousproducts
ease of entryinto the market
thisis thenumber degreeof thebarriersto entry BTE
degree depends on howlongexpensive will it be for new entrant to establishitself in market at comp
andwhethertheycansucrestally joinmarket
BTEpreventnewfirms enteringthe market profitabily which t producersurplus as it means that produceus can
charge higherprices soincentivetoproducer
TBTE t competition
theyallowincumbentfirms firmsalreadyin to make supernormal profitsbeforenewentrants enter
competetheseprofitsaway
examples ofBTE
1BrandLoyaltymakesdemandmoreinelastichencebarrierhardfor newfirmsto
gaincusloyalty
2Economiesofscale hardertoreachminimumefficientscale of production sooperates at higherpointon avgcostcurve passedas t
pricessomeEosonlyavailable tofirmsoperatingon largescale
3 Havingstrongreputation
4 Pricewar aggressivepricetactics predatorypricing drivecomp out
,3 4.2Theobjectivesoffirms
profit importantobjective howeverthere'sotherobjectives
objectives atteahowfirmbehaves
1 PROFIT
differencebetween te te rewardenterpreneursyieldfromrisktaking
incentive to takerisks usingFop's to createbrandnew products development of newtechnologies toimproveproduction
process benefitseconomy TLRgrowth job creation
profitmaximizingOccurswhen Mc MR
assumptionthisis objective ofprivatebusinesses in marketeconomy
because
shareholders largerdividend
employees t wages
retainedprofitit cheapsourceof financeratherthan loanChirexpensive investment tip andmacrobenefits n s R 42growth
creatingjobsimproving internationalcompetitiveness ta D
anykeentoprofitmaximise morelikely to have se profitmaximizationas anobjective torecieverdividents
444
keepshareholdershappysimpasthey arefundingthe enterprise
lowerprices choir consumersurplus
because
profitmotivated businesseswillalwayskeepcostslow revenueshigh implying no waste inproduction ensuringconsume
SRUsLR
PMinLRsometimesmeanssacrificingprofitsinSR
firmmayaimtomaximisesalestrevtotems in s r gainme tomake supernormal profitsinLiz
EOS costst Mess inLR easierto makeprofit
evaluation
1 inreality knowledge of MR Mcmaybeimpertea hard for firms to be profitmaximizershoweverevenit not producingat
whereMR Mc idea ofPMstillholds
2 makinglargesupernormalprofits could signalinvestigationbyregulatoryauthorities becausevery t profitsmay
bedueto excessivepricingbeyondme exploitation of consumers monopolybehaviourssignals regulatorybodies
toinvestigatethe business storied pricereduction Impworkconditions greenermachinery TI t T IOP
3 PMisn'tcurrently bestbusinessstrategy as they may want to t market share quickly Hoodmarket withproducts
develop BL orbenefitfromgreater Eos all requiringdifferentobjectivesto be pursued atleast in the SR
ulonlybenefitsmanagers stakeholders not employeesconsumers environment eh
otherobjectives
2 SURVIVAL
partilularly for newfirms
shorttermobjective
, duringperiodsof economia decline eg 2008 financial crisis when consumer spendingplummets fir
usuallyhave survival as objective until theres EG again
sofirmsmay aim to sell as much aspossible to keep their market position even itit's a lossin the Sk
thisobjectivecan d overtime aslongas significantlosseshaven'tbeen made upon entry
3 GROWTH A firm size
Why could be to takeadvantages of Eos growth T output t unit cost easier to reach MEs Teos
suchas riskbearing spreadrisks over large number of investors and technical
I
Would t averagecosts in LR t profitability
largefirmsmoreable toparticipatein R D A competitiveness Tetticiency inLR
how
expand productrange
merge takeover existingfirms
4 increasing market share
TMI helpsAchance ofsurvivinginmarket achieved bymaximizingsales
eg amazontried tm s in e reader market bytrying to sell as many kindles as possible
In SR loss butLiz gainedcustomer
loyalty and now are a
leadinge readerproducer
5 Corporate social responsibility
operatingin a way that bringsbenefit to society butwhilealsomakingsupernormal profits
environmentally friendly byusing sustainableresources
supportinglocalbusinessesbyusingsuppliersintheirregion
payingworkers abovestandardmarket rate
Timage t sales Marketingpower t profits utilityboost to employeesfromdoing somethingsocietallygood
Others
Society
environmental
ethicalwherethere are philanthropicowners
managerialforpersonalgains luxurycars holidays
workerwelfare
profitsatisticingsacrificeprofitsto satisfyasmany stakeholders aspossiblepmonlybenefitskeepstakeholders managers share
hold
harmingotherslikeworkers Nw consumersctp environmentalgroup sobusinesseswhoaimtoPs purposefullytolevelor supooh
to satisfyneeds wants of all stakeholders topreventcostly futuredisputes
Objectives of firms influence its behaviour
