: Demand Estimation A. Market Characteristics & Demand estimation The price, quantity data provided in the data set is a reasonable approximation for the demand estimation of the product. However we are assuming that the other depending variables like advertising, substitutes are not affecting the demand schedule. Market structure is monopolistic in which many competing producers/retailers sell products/services which are differentiated from each other. In monopolistic competition, firms behave as monopolies in the short-run. Some of the characteristics of the retail industry in which Wal-Mart operates as follows. 1. Monopolistic market has many producers and consumers but no single market leader with influence over market price 2. Consumers choose the producers based on brand, advertising. 3. Producers still influence market price with relatively less entry and exit barriers. B. Linear vs Log-Linear Demand Curve Linear demand curve assume that changes in price, prices of complementary/supplementary goods, income, advertising and related factors will lead to a constant marginal effect. We assume linear demand curve within the given range of data. Since we assume that the effect of unit change in the independent variable will lead to a constant effect on demand in linear demand cure analysis. Hence changing elasticity is the basic assumption under a linear demand curve. In Log-linear demand curve we assume that there will be varying change in the demand due to unit change in the independent variable (price), but the elasticity of the demand is assumed to be constant. Constant elasticity is the basic assumption under a log-linear demand curve. Part 2: Regression Analysis Summary Table: Linear Demand Curve Regression Stat... ... middle of paper ... ...s and Statistics, 59 (3), 355-359. Christ, Carl F. (1985). Early Progress in Estimating Quantitative Economic Relationships in America. American Economic Review, 75 (6), 39-52. Eales, James S., & Unnevehr, Laurian J. (1988). Demand for Beef and Chicken Products: Separability and Structural Change. American Journal of Agricultural Economics, 71 (3), 521-532. Farnham, Paul G. ( 2005). Economics for Managers. Upper Saddle River. NJ: Pearson Education, Inc. Ferger, Wirth F. (1932). The Static and Dynamic in Statistical Demand Curves. Quarterly Journal of Economics, 47 (1), 36-62. Hirschey, Mark. (2006). Managerial Economics. Stamford CT: Thomson Higher Ed. McGuigan, James R., Moyer, R. Charles, & Harris, Frederick H.deB. (2005). Managerial Economics: Applications, Strategies, and Tactics with Economic Applications. Stamford CT: Thomson Higher Ed.
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
The Keynes effect says that higher price level will cause a lower real money supply, which would increase the interest rates from the financial market. The demand curve illustrates a relationship by the quantity of output and the price level of the aggregate demand. This demand is expressed over a fixed level of nominal supply in money. Some of the factors that shift the aggregate demand curve to the right are the increase in money supply, government spending or consumption spending or as simply decreasing taxes. The aggregate demand curve is the total sum of every individual sector of the economy, usually described a linear sum.
Wal-Mart’s competitive environment is quite unique. Although Wal-Mart’s primary competition comes from general merchandise retailers, warehouse clubs and supermarket retailers also present competitive pressure. The discount retail industry is substantial in size and is constantly experiencing growth and change. The top competitors compete both nationally and internationally. There is extensive competition on pricing, location, store size, layout and environment, merchandise mix, technology and innovation, and overall image. The market is definitely characterized by economies of scale. Top retailers vertically integrate many functions, such as purchasing, manufacturing, advertising, and shipping. Large scale functions such as these give the top competitors a significant cost advantage over small-scale competition.
A monopoly is a market structure in which there is only one producer/seller for a product or service. In other words, the single business is the industry. That individual producer/seller has the power to influence the market prices and decisions. In a very extreme case, a monopolist could be the only owner and seller of a product or service in an industry. A monopoly has an enormous amount of buyers and it has no big competitors what so ever. This is because it has the power to destroy competition. A monopoly controls the prices of the goods and is the price maker as well. Unlike in a perfect competitive market, consumers/customers in a monopolistic market do not have perfect information on the products or services they buy. Consumers have limited choices and have to choose from what it is supplied. The monopolist asserts all the power while the consumers are left with no choice. For example: Imagine if Comcast was the only mass-media company that was able to supply cable TV. If anybody would want to watch TV, they would need to purchase Comcast’s cable service at any given price, as it would be the only cable TV provider.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
Wal-Mart Stores Inc. is in the discount, variety stores industry. It was founded in 1945, Bentonville in Arkansas which is also the headquarters of Wal-Mart. Wal-Mart operates locally as well as worldwide. It operated 1209 discount stores, 1980 super centers, and 567 Sam’s Club by January 31, 2006. It has also extended its operations to many international countries. It runs its retail stores in two forms: Sam’s Club and Wal-Mart Stores. The Sam’s Club sells assorted product lines such as hardwares, electronics, jewelry, and to mention a few. The Wal-Mart stores also offer similar products in addition to the following: health and beauty products, apparel for women, men and children, household appliances etc (www.yahoo.finance.com). The Vision Statement, Mission Statement, Values and Code of Conduct, Corporate Governance: Directors, Executive Management, Committees and Stakeholder will be the key elements that will discussed in this report as it relates to Wal-Mart. In addition to that, the major trends in the general/macro environment and industry will be analyzed.
The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/
Wal-mart has been able to achieve respectable leadership in the retail industry because of its focus on supply chain management. Discuss in detail the distribution and logistics system adopted by Wal-Mart.
Price changes affect demand for various foods. According to the economic theory, consumption of a certain product falls as the price of that item rises...
A monopoly is “a single firm in control of both industry output and price” (Review of Market Structure, n.d.). It has a high entry and exit barrier and a perceived heterogeneous product. The firm is the sole provider of the product, substitutes for the product are limited, and high barriers are used to dissuade competitors and leads to a single firm being able to ...
Figure I I .4 illustrates the effects of an increase in demand. OD is the original demand curve so that the equilibrium price is P and quantity Q is demanded and supplied.
Commercial firms use Price Elasticity to manage pricing and production decisions, especially in industries where the growth in sales and revenues are the primary measure of a firm’s success. Knowledge of the Price Elasticity for a product or service enables managers to determine the pricing strategy required to get the sales results desired. For example, a firm with a product with a relatively high elasticity would know that a large sales increase can be created with a small price decrease. Conversely, a firm with an inelastic product knows that changes in pricing would have minimal effect on sales.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
Wal-Mart Stores, Inc. is a renowned retail goods superstore that sits atop the Fortune list at number one. It would be very difficult to find an individual who is unaware of Walmart’s position as the largest brick-and-mortar retail chain in the world. The company has thrived over the past few years and is continuing to grow by effectively managing its store operations and distribution strategies. One of the major contributors to the business consistently meeting market expectations is directly attributable to their management approach. Walmart has revolutionized the way retail companies manage their supply chains in more ways than one. But, perhaps the most revolutionary was the practice of unprecedented coordination with suppliers (Chekwa,
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.