Business Environment 8_market structures, market forces, competition commission

The lecture provides knowledge on 4 types of market structures including Perfect competition, Monopoly, Oligopoly, Monopolistic competition. It explains how market structures in the case study deviate from the model of perfect competition. Porter’s Five Forces (Market Forces)

LECTURE for BE ASSIGNMENT TASK TASK 3A Sources: 1.BE_Market Structures Video: C:\BTEC\BE\economics videos\BE_Market Struc tures.flv 2.BPP Business Environment Coursebook (pages 238 -245) Market Structures The term market structure is used to describe:  The number of buyers and sellers operating in a market  The extent to which the market is concerned in the hands of a small number of buyers and/ or sellers  The degree of collusion or competition between buyers and/ or sellers Source: BPP Professional Education, 2004, p 258) Market Structures Four main types of market 4 Perfect competition Monopoly Oligopoly Monopolistic competition Perfect Competition Exists when there are so many people in the market, and other conditions are such, that no-one can influence the price, all other things being equal Characteristics:  There are many buyers and sellers None of them could have influence on the market price Buyers and sellers must accept the price which the market determine Therefore, they are pricetakers  Homogenous products  Free entry and exit the market  Information is always available for buyers and sellers Revenues of a competitive firm: Average revenue: total revenue divided by the quantity sold Therefore, for all firms, average revenue equals the price of the good Marginal revenue: the change in total revenue from an additional unit sold Therefore, for competitive firms, marginal revenue equals the price of the good Source: BPP Professional Education, 2004, p 239 Perfect Competition FIGURE shows the: -The goal of firms is profit maximization:  Marginal-cost curve (MC)  Average-total-cost curve (ATC)  Average variable-cost curve (AVC)M  Market price (P) = Marginal revenue (MR) = average revenue (AR); P=MR=AR  At the quantity Q1, marginal revenue MR1 exceeds marginal cost MC1, so raising production increases profit  At the quantity Q2, marginal cost MC2 is above marginal revenue MR2, so reducing production increases profit  The profit-maximizing quantity QMAX is found where the horizontal price line intersects the marginal6 cost curve Monopoly Exists when there is only one supplier of a product or services (BPP Professional Education, 2004, p.241) Characteristics:  There is only one firm in the market  A price is made by a firm  Customer choice limited  Joining into market is very difficult because there are many barriers to entry such as a main resources are owned by a firm, the government gives a firm which is monopoly for a particular products or services like electric, water, etc Oligopoly Few large suppliers, whose business decisions affect each other (BPP Professional Education, 2004, p 242) Characteristics:  There are a few large firms in the market  Products could be same or different but they are concerned into some firms  Highly barrier to entry  Have an interdependence between companies in the market Monopolistic competition Occurs when a large number of firms sell closely related, but not homogenous products Instead, the products are said to be “differentiated” and not seen as prefect substitutes by consumers There is a heavy reliance on non-price actions eg, advertising, to differentiate the product (BPP Professional Education, 2004, p 244) Characteristics:  A large of sellers and buyers  Easy to entry and exit the market  Product differentiated so each company have a tiny market  The firms which join the market later are pricetakers They have no affect on the market price Relate to Giay Viet (See Assignment Guideline) Monopolistic competition  In a monopolistically competitive market, if firms are making profit, new firms enter, and the demand curves for the current firms shift to the left  Similarly, if firms are making losses, old firms exit, and the demand curves of the remaining firms shift to the right  Because of these shifts in demand, a monopolistically competitive firm eventually finds itself in the longrun equilibrium shown here I  In this long-run equilibrium, price equals average total cost, and the firm earns zero profit 10 Competitive Strategies  Market segmentation (p.252-253)  Marketing mix (p.254-256)  Generic/competitive strategies (p 256-257) - see next slides 17 Competitive Strategies Three (3) types of competitive strategies  Cost leadership strategy – firms always seeks the lowest - price for their products Producing products at the lowest-price not only help firms compete with other producers but also create the highest unit profits (BPP Professional Education, 2004, p 257)  Focus strategy - based on segmenting the market 18 and focusing on particular market segments The firms will focus on a particular type of buyer or geographical area  A cost-focus strategy involves selecting a segment of the market and specializing in a product (or product) for that segment  A different-focus strategy involves selecting a segment of the market and competing on the basis of product differentiation for that segment (BPP Professional Education, 2004, p 257) Competitive Strategies  Differentiation strategy - based on the assumption that competitive advantage can be gained through particular characteristics of a firm’s products or brands The customer is prepared to pay more for this distinguish characteristic Some types of characteristics:  Colour differences  Size differences  Different wrapping or containers  Variants of the product for different market segment  Small change in products’ formulation to maintain their novelty value  Different technical specifications Through it, they will create a particular impression for customer (BPP Professional Education, 2004, p 257) 19 Competition Commission  The Competition Commission (CC) is one of the independent public bodies which help ensure healthy competition between companies in the UK for the benefit of companies, customers and the economy It was established by the Competition Act 1998 It replaced the Monopolies and Mergers Commission on 1st April 1999 20 Role of competition commission  The Competition Commission conducts indepth inquiries into mergers, markets and the regulation of the major regulated industries Every inquiry is undertake in response to a reference made to it by another authority: usually by the Office of Fair Trading (OFT) but in certain circumstances the Secretary of State, or by the regulators under sector-specific legislative provisions relating to regulated industries The Commission has no power to conduct inquiries on its own initiative 21 Role of competition commission  In most merger and market references the Commission is responsible for making decisions on the competition questions, implement decisions on appropriate remedies  Under the legislation that the Act replaces, the Commission had to determine whether matter were against the public interest 22 The Office of Fair Trading (OFT)  The primary role of the Office of Fair Trading is to manage these consumer laws and to look after the rights of consumers At the same time, the OFT advise businesses and traders on fair and ethical practices The OFT’s aim is to achieve fairness for all in the marketplace 23 Role of Office of Fair Trading (OFT)  Ensure that consumers have as much choice as possible across all different sectors of the marketplace  Promote and protect throughout the UK consumer interest  Ensure that businesses are fair and competitive 24 Regulation A company has to obey not only laws of Vietnam but also particular laws of other nations in which the company export products 25 Role of regulatory bodies in Viet Nam  Vietnam Competition Council, Short is VCC As agencies of the state monitoring business marketers of enterprises in Vietnam In addition to VCC Vietnam also has one other organization Organizations such as Vietnam Competition Administration Department, abbreviated as VCAD.The role of VCC and VCAD very important VCC VCAD and has management and treatment of business enterprises in the territory of Vietnam Do more research… 26 Role of regulatory bodies in Viet Nam  Making policies to protect environments, consumers, and so on about the standards of quality, tax, and other areas  Make recommendations on the use of reasonable price for shoe manufacturers  Planning for effective regional shoe manufacturing  Organize production, increased capital investment for businesses industry 27 and the shoe manufacturing Role of regulatory bodies in foreign countries (UK)  Giving law imported shoe closely to ensure quality products more  Make regulations on tax and customs import of shoe products (You may refer to pages 267 – 269) 28 Role of regulatory bodies in foreign countries (UK)  Products have to follow the standards of International Standardisation Organization – ISO was established in 1964 For example, when exporting in EU and UK, Giay Viet hs to follow the standards of ISO 9000 including three standards ISO 9001, ISO 9002, ISO 9003  Simplifying customs tax to speed up the process of importing Do more research… 29 Task 3c Explain the behavior and competitive strategies employed by GiayViet Joint Stock Company and discuss the role of the competition commission and regulatory bodies Write your references here ... 3A Sources: 1.BE _Market Structures Video: C:BTECBEeconomics videosBE _Market Struc tures.flv 2.BPP Business Environment Coursebook (pages 238 -245) Market Structures The term market structure... 2004, p 258) Market Structures Four main types of market 4 Perfect competition Monopoly Oligopoly Monopolistic competition Perfect Competition Exists when there are so many people in the market, and... It was established by the Competition Act 1998 It replaced the Monopolies and Mergers Commission on 1st April 1999 20 Role of competition commission  The Competition Commission conducts indepth