It is depends on the existing firms and the “height” of barriers to entry that attributes of an industry’s structure. The threat of new entrants will affect by: Firstly, the economics of scale as “high” barriers to entry into the industry that can make the industry more attractive because of the existing firms can earn expect above normal profits. Secondly, the product differentiations that the existing firms have their own brand identification and customer loyalty that will lead to new entrants use more costs to start other industry and then reduce their potential return. Thirdly, cost advantages independent of scale mean that the existing firms have a whole range of cost advantages. There are proprietary technology, managerial know-how, favorable access to raw materials, and learning-curve cost advantages.
It is a common trend for trade barriers to be effected in an oligopoly market. In addition, cartels exist in an Oligopoly market. The cartels are responsible for setting the prices. Sometimes they form alliances that are responsible for dictating the prices of goods and services in the market (Hildenbrand, 2010). It is a common practice for firms in an oligopoly market to collude
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 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 (Rittenberg & Tregarthen, 2009). In view of this, the following items will be classified as a perfectly competitive market and a non-perfectly competitive market.
Therefore, the market structure through several channels control and affect the pricing and competition in the market through the intermediaries involved in it. And it is the structure of the market that contributes a lot in identifying the behavior of the market that is then under the market
Market Structures And Pricing Strategies 1 MARKET STRUCTURES AND PRICING STRATEGIES Name: Institution: Market structures refer to the number of firms in the market that produce identical goods and services. Market structure greatly influences the supply of different commodities in the market place and consequently the behavior of firms in the industry. Pricing decisions and strategies are very crucial aspects when it comes to market structures since every economic activity in the market is measured as per the price (Bar-Gill, 2012). Before coming into a final decision towards the price to set, stakeholders who are mostly the managers need to critically analyze each market need and the existing conditions and emerging developments.
PRICE-QUALITY RELATIONSHIPS The conceptualization of market response as influenced by different segments of consumers, each with different perceptions of and preferences for product characteristics, leads to a managerially useful means for determining the optimum levels of price and quality to set for a product. In order to apply Shugan's model to a real market situation, one would need data about the market's response coefficients for both price and quality. The coefficient of sensitivity to changes in price could be determined from data collected in actual field manipulations of prices, or from experimental simulations, such as Dickson and Sawyer's (1984) approach. The quality-response coefficient, however, would be somewhat more difficult
Management will be able to distinguish between profitable and non-profitable activities. To maximize profits, management will opt to concentrate on profitable operations and obliterate non-profitable ones. Channelling production in the right line is a good example in the decision-making process of a firm. Furthermore, costing can be useful in periods of recession and competition for decision-making. During trade downturns, businesses cannot afford to have leakages which pass unchecked.
The major part of business decision making depends on accurate estimation of demand. It explains how the consumer decides whether or not to buy a commodity, how they decide on the commodity to be purchased, how the consumer behave when the price of the commodity, their income and tastes and fashion, etc. change at what level of demand, changing price become inconsequential in terms of total revenue. The knowledge of demand theory can, therefore, be helpful in the choice of the commodity to be produced. Forecasting is another important scope of business economics.
Accounting also gives information to the interesting parties about economic performance and company’s condition. According to Considine et al. (2010), accountings role is to gather data about a business’s activities, provide a means for the data’s storage and processing, and then convert those data into useful information. An accounting system consists of the personnel, procedures, technology, and records used by an organization (1) to develop accounting information and (2) to communicate this information to decision makers (Williams, et al., 2008). Accounting information is raw data concerning transactions that have been transformed into financial numbers that can be used by economic decision makers (Jones et al., 1996).