05 Jun WHAT IS THE MARKET STRUCTURE FOR
- Different products have different price elasticity of demand (PED). Heart medication, for example, is inelastic, and corn is elastic. Find a product that has not already been selected by another student and describe its price elasticity of demand and income elasticity of demand. How much control might an organization have over pricing based on a product’s elasticity? Discuss which of the elasticity rules you used to determine your answer.
- We did not get a chance to really dig into the differences of explicit and implicit costs last week, so I figured we would carry this over to this week. If you responded last week, in order to receive Participation credit this week you must respond in a new, unique way.
Over the last week and a half many of you have shared your experiences with the different types of costs (fixed and variable costs) in your business. One of the unique challenges is owning your own business. Several of you have hit on this challenge in other discussions. While this class is not geared towards discussing/resolving the pitfalls of owning your own business, a few of you discussed that marginal costs increase when you (as the owner) have to pay someone to fix errors that bring in no more revenue. Depending on the business and the services/products provided, doing ‘re-work’ is only a cost. While there is a benefit to performing this work (retention of customers by providing excellent customer service or providing a quality product), it does not increase revenue. This needs to be factored by the manager when calculating optimal profit. Most companies do include this, as evidence by production companies’ financial statements having contra revenue accounts (sales returns, defective sales, etc.).
As we progress through this course, you will see how equilibrium will move, the reasons why it moves, and how the business, the industry, and government can make it move.
- This chapter discusses one extreme on the range of market structures – pure competition (the other extreme being a monopoly as we will discuss in a different chapter). On this extreme of pure competition which is very rare and depending on how you view it, may not exist at all. Let’s look at the example of a commodity – corn, wheat, other grain, or crop. In the market, a potato is a potato, right – or is it? There are various types of potatoes obviously and they are grown in different parts of the US and the world – but marketing can make an Idaho potato more enticing than a generic potato. If you don’t believe me, look at all of the restaurants that tout the Idaho potato – Five Guys actually puts the name of the farm that the potato comes from! As such commodities try and differentiate themselves if they can.
Also, what about government involvement? The US government will subsidize farmers to NOT produce corn, in order to keep the price of corn stable (keep supply in check with demand). So, the market may be pure competition based on the commodity, but there are other forces at work that can tweak a commodity from competing in a purely competitive market. We will discuss government involvement in the coming weeks!
- Let’s discuss the types of market structures in a practical way. Please list the major wireless phone handset manufacturers and respond to the following questions –
- What is the market structure for wireless handset manufacturers?
- What pricing strategies do wireless phone handset manufacturers use?
- How do wireless phone makers attempt to differentiate their handset offerings?
- What market structure best characterizes the market in which University of Phoenix competes? How does this structure influence the university’s pricing strategy? How does University of Phoenix differentiate its product from that of its competitors?
Can University of Phoenix do more to create nonprice barriers to entry in this market? Why or why not?
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