• By building economies of scale so that it can lower the fixed cost per unit. • Building capacities and spending money on research and development. New entrants are less likely to enter a dynamic industry where the established players such as Twitter, Inc. keep defining the standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus discourage new players in the industry. Bargaining Power of
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.
For example, in a free market economy workers have the independence to work at whatever firm/business they want. They even have the privilege of producing what they want as well. While, in a communist society (planned market economy) workers can’t choose their work because the government is in control. Not to mention, individuals in a free market economy have the property right of choosing their own labor plus they can make free contracts for those services (Rothbard, “Free Market”). With job specialization, individuals could work on only tasks that they are very skilled at instead of wasting time and energy trying to do everything at once which thus allows the economy to be effective.
In a highly competitive firm, similar products allow buyers to find consistently low prices and a wide availability of the good that they want. Similar products also creates it to where firms are price takers because they have no control over the price set by the market. Similar
Having market power gives a firm the ability to charge higher than normal prices without losing all of its customers. Sources of Monopoly Power In general, a monopoly by one company possesses the power to create barriers to entry for competing companies in a particular market. Also, once a company has achieved a loyal following, it then becomes easy for that company to maintain control of the market. This leads to the elimination of potential competition. Barriers to entry, according to the Organization for Economic Co-operation and Development (OECD) (2007) are “impediments that make it more difficult for a firm to enter a market” (pg.
The second case – controlling the market – is where the contrast between small firms and big business contrasts is most evident. The small firm lacks the capacity to influence prices, as both their market share and purchasing power are limited; however, big business possesses an abundance of both. Big business is able to exert their power by influencing prices because their decision to buy can be the difference between survival and failure for suppliers. Furthermore, Galbraith (1967, 30) suggests that the influence of size enables firms not only to control price but also quantity sold. Although Galbraith acknowledges that influence on demand is inexact; One should not discount its importance.
When there is a large number of sellers and a large number of buyers in a market, that market is regarded as a perfectly competitive market or industry. In a perfectly competitive market, a single firm cannot dictate the pace and the selling price (Khan Academy, n.d.). In other words, one firm cannot set the prices and the competitors are obligated to market prices. What is fascinating about a perfectly competitive industry is that the barriers that prevent new firms from entering the industry are flexible; that means there are minor barriers of entry as well as little or no barriers to exit the industry (Rittenberg & Tregarthen, 2009). Additionally, buyers and sellers have all the necessary information to make a decision to buy or sell a product.
However, there are threats to this competitive advantage. Wal-Mart and other stores have experimented with smaller locations throughout the country. Current threats include; increased rivalry within the industry, copying the Trader Joe’s strategic model, lack of technology/online presence and substitute brands. Tesco was unsuccessful in the United States that does not mean that other industry competition will not try and imitate or copy the Trader Joe’s concept. Other threats include new competition, local co-ops, e-commerce (Amazon) and a shift in consumer preference.
There is an assumption among the consumers that there is a non-price difference amongst the competitor's products. There are very few if any barriers to entry and exit and finally the producers control the price up to a specified degree. It's essential to note that in the long run, monopolistic competitive market characteristics are almost the same as of those of the perfectly competitive markets. Their two main differences include production of heterogeneous products by the monopolistic competition and the involving a lot of non-price competition based on the product differentiation. In the short run firms that make profit will break even in the long term because of demand increases and the average total cost increases.
If a country intensively use their abundance resource and cheap factors to specialize production for a product domestically and export it to foreign, meanwhile, sacrifices production for the goods have relative scarcity of resource which could import from foreign country. Eventually create trade in order to better off each other & gain from trade. Assumption taken is similar to Ricardian models included two goods, two nations, and fully competition market. The two factors labor and lands can substitute each other but not perfect substitution. The substitute process may affect and lower down the productivity.