Markets - why they fail * Allocative efficiency occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off. * Dynamic efficiency occurs when resources are allocated efficiently over time. * Productive efficiency is achieved when production is achieved at lowest cost. * Technical efficiency is achieved when a given quantity of output is produced with a minimum number of inputs. Consumer and Producer Surplus ============================= Text Box: A perfectly competitive market consists of: Many firms in the industry- therefore firms cannot manipulate the prices.
Which one is better Buy Now: Wal-Mart Stores, Inc. vs. Costco Wholesale Corporation? Costco is doing better, but Wal-Mart stock is much inexpensive. Which one is a better buy right now? Here are two different retailers with two different strategies. The alternative norms are that Costco operations are entirely based on the warehouse model and membership fees offer customer more of an economic advantage to customers than Wal-Mart everyday low prices and flexible payment with suppliers.
With us not being a franchise or chain of stores, we often pay more to wholesalers and distributor. Although our ultimate goal is to keep prices low and competitive, those costs could cause our prices to increase just to remain profitable (Teige, 2008). Marketing Strategy
A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity.
There is also little difference in the supplier’s products. Overall Analysis of Industry Attractiveness Overall, the computer industry is relatively attractive. The potential for future growth is high but new competitors must face the threat posed by already established, well-known brands. There are relatively few substitutes for computers and the power of suppliers and buyers is low. New companies would likely be able to successfully yield a profit.
The cost of switching between traders is small and the process quick, therefore buyers that are price sensitive are very likely to switch to those traders who can supply the same goods for a lower price. But even though there are many traders in the industry, only a handful have distinguished themselves because of their large global sourcing and manufacturing networks, such companies can even charge a premium for their services as they deliver extremely high levels of value and quality. Thus although buyers in this industry are price sensitive, there is a constant struggle between value for money (quality, timely delivery, customer service) and low cost. The trading industry lacks any significant barriers to entry t... ... middle of paper ... ... network allowing them to organize their functions as if they were different steps in the manufacturing process. Typically they will only use 30-70% of the supplier’s capacity thus allowing for flexibility and access to new suppliers.
Therefore, lowest price is not a main concern for most consumers. - For durable and luxurious goods when deciding to buy these products, price is one of the most important factors to be considered as the price of these products are high. Therefore, people will compare the price among various shops and purchase from the shore that offers the best deal at the same quality.
A case of this occurs when a single firm dominates a certain market, but has no pricing power because it is in a Contestable Market, “a market in which an inefficient firm, or one earning excess profits, is likely to be driven out by a more efficient or less profitable rival.” (www.economist.com) Oligopoly Oligopoly is when a few select firms dominate a select market. In this situation there are only a few producers but many buyers, and the action of one producer will affect the influences of other producers. (www.oligopolywatch.com) when this happens the producers can’t decide on a price like a monopoly can and they often turn into competitors. When they do compete on price, they may produce as much and ch... ... middle of paper ... ...a product or service. Just by looking at Easy Jet, you can see that competition has an affect and for them to keep their customer base they have to cut costs so demand for the service will still be there.
Smith has become labeled by many as “the father of modern economics,” however his policy is quite simple, there should be a hands off policy by the government. This means no government interference so that the marketplace will involve only private businesses and consumers. In this way the businesses will be dependent upon the consumers and will be forced to appeal to them by offering incentive in the form of competitive prices or a better product to beat their competition. In this type of economy consumers contain all the power, businesses pass or fail by their own merit and quality. Since businesses are now completely dependent upon the customers, these businesses now have incentive to offer high quality products at the lower prices.
Price premium definition is sum consumers are willing to pay for a brand, compared to other related brands, and can be either negative or positive. The price premium does not essentially fully relate with actual consumer prices. It is also used to increase revenues in where consumers are happy to pay higher when there are no closed substitutes for the product. The term also symbolizes a high-status business that could produce far more revenue in the short term by reducing prices. Sales volumes remain low by keeping prices high.