This means that when one lowers its prices to try to steal the other’s market share, the other will respond by reducing its price even more to stay in competition. Both firms enter a vicious circle, from which buyers benefit, but may be fatal for the companies involved. Thus a firm must take into consideration present as well as future gains and losses when
It determines the level of barrier whether it is easy or difficult for new entrepreneurs or investors to enter into an industry to begin a new business. The level of barrier is directly related to the threat of new entrants. For example, if the level or barrier is low, new entrepreneur can enter into the industry easily; therefore causing the competition of the industry to be high, then the prices and profits will fall (Williams and Mc Williams, 2010). Some industries are very hard to enter such as shipbuilding whereas some industries have a lower level of barrier like agency, restaurants or estate (Usmak and Arslan, 2012). A great example of threat of new entrants will be the baristas in the coffee industry because they have a low barrier to entry.
However, when the monopoly firm is established, the monopolist may spend some money on advertisement to acquaint the consumers about his product. But he will spend on advertisement only once. On the other hand, due to large number of firms and existence of competition among them, expenditure on selling costs is essential under monopolistic competition. 5. The monopolist can charge different prices from different customers for the same product and can adopt the policy of price discrimination.
The companies involved in the price war can take steps to curtail their Selling, General and Administrative (S, G & A) expenses to improve their performance. If the company’s pricing strategy succeeds, the company will earn good operating profits. However, if it fails, the curtailed and well planned S, G & A expenses will help the company mitigate the competition risks. The lower S, G & A expenses as a percentage of revenue indicates a better performance. Sainsbury’s already had much lower S, G & A expenses as a percentage of its revenue than that of Morrisons.
The market is dominated by a few firms; firms either sell identical or differentiated products. There are significant barriers to entry, meaning that other firms won’t be able to enter the industry thus firms can make supernormal profit in the long run. The firms react to rival’s change in price and output; therefore they practice non-price competition, such as: • Gaining customer reliability • Price collusion • Additional services and advertisings to appeal
One explanation appeals to be behavioral traits; the managers acquiring firms may be driven by overconfidence in their ability to run the target firm better than its existing management. This may well be so, but we should not dismiss more charitable explanations. For example, Firms can enter a market either by building a new plant or by buying existing business. If the market is not growing, it makes more sense for the firm to expand by acquisition. Hence, when it announces the acquisition, firm value may drop simply because investors conclude that the market is no longer growing.
A portion of the profits are: An opposite auction furnishes purchasers with the most intensely estimated answer for their needs by pitching suppliers against one another to be the one offering the least evaluated offer. It spares time in the procurement furthermore streamlines the procurement process and also decreases the need to send an alternate appeal for proposal to every potential supplier. It just as has a few burdens that makes it a terrible system like making issues when fitting controls are not placed set up. Rivalry at the most reduced cost can make a few suppliers to reduce quality to increase throughput to boost profit or even send them bankrupt when the task ends up being a misfortune. Since this is built exclusively with respect to value, quality and standard may be traded off and forceful under-offering practices can bring about supplier winning an agreement that can't be totally executed at the concurred
In the case of oversubscription, the market is crowd out by informed investors, as a result, the return of IPO shares that the uninformed investors receive from allocation is below the average returns. Thus, the uninformed are unwilling to buy IPOs and withdraw from IPO market. Rock (1986) suggests that the IPO market needs the uninformed demand when the informed demand is not enough to response all shares on offer. The positive expected return is an important condition to attract the uninformed investors to participate the IPO market. This leads to the IPO underpricing.
8.Easy price comparison forces companies to set their prices competitively which is a positive point for customers. 9.Stable prices in the market helps customers plan and stabilize their expenditure, which in turn may lead to stabilization of trade cycle. Disadvantages of Oligopoly 1.Setting of prices may be advantageous for the firms, but if done unrealistically, it may prove to be a great disadvantage for consumers. 2.Creative ideas or plans of small businesses in the oligopolistic market fail to realize because they cannot overcome the control of major market players. Their realization is only possible when one of the major player adopts it for use.
Disadvantages of privatization 1. The problem of monopoly The first drawback will be a potential of monopoly by big companies. Although there are oppositions argue that privatization can introduce market forces and competitions which can motivate the improvement of services and performance, there is still a possibility for monopoly by the big companies which will dominate the markets and hinder the freedom of economic market. As the LINK is a private sector, their ultimate goal is always profit maximization, they will collect higher rent when comparing to the Housing Authority. Those small individual tenants are forced to close down as they cannot afford the increasing land rent, the shops remained will be those big-chain shops.