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)

TASK 3

1

LECTURE for BE ASSIGNMENT 2

TASK 3A

Sources:

C:\BTEC\BE\economics videos\BE_Market Struc tures.flv

(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)

 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

-The goal of firms is profit maximization:

FIGURE shows the:

 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

marginal-cost curve.

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.

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 2 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 long- run equilibrium shown here I

 In this long-run equilibrium, price equals average total cost, and the firm earns zero profit.

Differences between monopolistic competition and perfect competition

Three (3) main differences between two types of market:

For perfect competition, products are homogenous While for monopolistic, products are differentiated

In contrast to competitive firms, monopolistic competitive firms produce more products and they also take price higher

For the relationship between price and marginal cost: For a competitive firm, price = marginal cost For a monopolistic competitive firm, price exceeds marginal cost

Task 3A

Explain how market structures in the above case

study deviate from the model of perfect competition.

Task 3B

Use a range of examples to illustrate the

relationship between market forces and

GiayViet Joint Stock Company responses

To answer this task:

Create 5 Forces’ analysis for Giay Viet

and its responses for each force

Provide charts/graphs.

Competitive Strategies

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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 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

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 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)

Competition Commission

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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 1 st April 1999

in-in certain-in 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

The Office of Fair Trading (OFT)

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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

Role of Office of Fair

Trading (OFT)

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Ensure that consumers have as much choice as possible across all different sectors of the marketplace

Promote and protect consumer interest throughout the UK

Ensure that businesses are fair and competitive

Regulation

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A company has to obey not only laws of Vietnam but also particular laws of other nations in which the company export products

Role of regulatory bodies in Viet Nam

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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

Role of regulatory bodies in Viet Nam

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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 and the shoe manufacturing industry.

Role of regulatory bodies in foreign countries (UK)

Role of regulatory bodies in

foreign countries (UK)

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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

of importing

 Do more research…

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