Monday, April 1, 2019

Questions and Answers on Economics and Market Strategies

Questions and Answers on Economics and commercialise StrategiesWhat argon the briny features of an oligopolistic merchandise? With the aid of examples, show secret approval mingled with firms in such(prenominal) grocerys whitethorn be de terminalent to consumers and explain soon what governments drop do to control the worst ab practises of such a situation.An oligopolistic market is characte put ond by a few organisations in disceptation with each other to bring out goods to a market. Their strength is non rather that of a monopoly, tho in that respect be typically a small number of comparatively strengthful operators, creating barriers to entry for potential competitors.The UK market for chocolate is by and large oligopolistic, with 90% of purchases being manufactured by Mars, Cadbury or Nestl (Marcous et al 2003 429). Branding is besotted, ruminateing the out ripening name and often the manufacturer (Cadburys Dairy Milk, for example).The impregnable investing put into return development creates a barrier to entry for the arguing, and competition is predominantly product-based, thus for chocolate, the aim is to create the products most popular with consumers. Laidler (1982 202) nones that firms run in an oligopoly tend to assume that if they swot up their charges, their competitors will non line suit, leaving them disadvantaged, alone that if they kick unfold their bells, competitors will replica the system, eroding margins across the market sector. As far as chocolate is concerned, the three main manufacturers legal injury their bars identically and r atomic number 18ly enjoyment price promotions. merchandising activities are social organizationd to encourage consumers to choose one brand ahead(predicate) of another when they read a purchase, sooner than to instigate the purchase in the first place.The tendency of oligopolies to follow similar strategies to their competitors is to a fault recognised as touch the gr oceries market ( force of unclouded barter 2008 151) and referred to as tacit co-ordination there is no formalised plan or demonstrateion between parties, hardly the accomplishments are to make the industry less inclined to be competitive (ibid), at the expense of the consumer who continues to pay high prices.There are examples of price competition among oligopolistic companies, such as between the Mirror and sunbathe new watering holepers in 2002 (Marcous et al 2003 429), just now the aim is more than(prenominal) often to support relatively high margins. Collusion emerges as one of the techniques to do this.Although collusion is illegal in most countries (Koutsoyiannis 1983 237), it whitethorn operate informally for example, manage magazines often publish information on what companies in spite of appearance a special(a) industry are doing with the implication is that a particular price coiffure is de rigueur within that industry (ibid). It was perhaps notable that whe n oil prices fell recently after a signifi peckt procession earlier in 2008, savings were not initially passed on through the price charged at the pump, and alone dropped when supermarket petrol stations began cutting their prices. This kind of situation, where organisations in an oligopoly assoil consistently with each other, whitethorn countenance similar effects to colluding, merely is not in burst of any regulations.Cartels build a similar effect for example, OPEC standardises oil prices across thirteen different member nations. such a situation whitethorn deter consumers as prices may be kept artificially high. If there is small-minded choice for the price-sensitive consumer, and thence reductions in purchase may occur. For example, as petrol prices rise, car users may be less inclined to make unnecessary journeys.OPEC is international, with government involvement to assist stability within the oil industry and operates through formalised agreements, contrast wi th the kind of collusive approaches which are widely outlawed. The UK government uses the Office of Fair handicraft and the op aim Commission to help control collusion (Marcous et al 2003 429) as it has a detrimental effect on consumers through fastness prices artificially high.The UK framework includes legislation prohibiting cartel-type activities, and this enables civil and criminal actions to be brought. Additionally, activities which are not illegal that may nevertheless compromise competition in the markets rump be investigated and action operaten, affecting monopolies and oligopolies for example, the requirement for blat to sell some of its airports because of its dominant position reflects issues selecting competition between airports.The UK Competition deed of conveyance 1998 forbids the place drawting up of cartels and facilitates civil sanctions, enforced by the Office of Fair Trading (Office of Fair Trading 2008 148). The 2002 Enterprise Act criminalises those who take part in cartels (Office of Fair Trading 2003 2). The Competition Commission investigates mergers and market activities which may compromise the competitive environment (Office of Fair Trading 2008 148).A recent example is price-fixing on fuel surcharges by British Airways and complete(a), who discussed and conventional the outline together. Virgin alerted the relevant authorities, resulting in the airline escaping prosecution despite participation, although reliable personnel from within Virgin are having actions taken against them (Milmo 2008). The investigation has resulted in large penalties for both companies, who have also set up a large compensation fund for passengers alter, and the issue has caused in particular bad publicity for British Airways (ibid). The individuals involved have been prosecuted under the 2002 Enterprise Act (ibid).A come along area of concern has been the operations of supermarkets, in particular with regard to activities with dairy pr ocessing companies, and they have been found to be in breach of Chapter 1 of the Competition Act 1998 and article 81 of the EC conformity (Office of Fair Trading 2008 148-9), with a number of parties fined. The power of supermarkets has been widely questioned (Blythman 2005), but the Office of Fair Tradings 2008 report into their activities found that period their practices may be detrimental to smaller grocers operating nearby, the general effect is beneficial for the consumer. This demonstrates how, boilers suit, the refer of the activities of organisations is go steadyed on the basis of its effect on consumers, not on other businesses trying to make do within the same market. while collusion, co-operation and co-ordination between oligopolies may be detrimental for consumers who pay unnecessarily high-minded prices, the determent factor of such practices may be limited, since if there is a drive and the oligopolistic market will not lower its prices, consumers have little choice they must purchase at high prices or go without.Why might the objectives of the managers (agents) of large companies differ from those of shareholders (principals)? Explain how the corporate political science scandal at Enron in 2001 showed clearly the problems of corporate nerve within large firms.An organisation typically has a wide range of stakeholders, from employees, suppliers and customers to shareholders and club groups, all with different interests and agendas. Traditionally, it was considered that the shareholders interests, as owners of the company, should take precedence, but this view has been largely superseded by the idea of the stakeholder concept (Marcous et al 2003 489), which takes into account the wishes of the broader stakeholder groups. This may wait to conflict with shareholders interests, but the stakeholder concept should result in a more profitable company through, for example, higher employee morale and productivity and lower module turnover t hrough investment in employee welfare, resulting in increase dividends for shareholders. However, shareholders may see these benefits as being long-term, and wish to invest in shares with a greater short-term return.Shareholders aims vary according to whether they perceive their holding as a short- or long-term investment. In the short term, they will be interested in the organisation having a strong profit with substantial returns in dividends to shareholders, rises in share price and potential profits on the disposal of shares in the near future tense. For longer term investment, the ongoing strategy and investment carried out by the organisation nonpluss more important. Investment may come at the expense of dividends, and while it should result in a more profitable enterprise in the long-term, the short-term returns are affected and the share price may drop, decreasing the worth of the shareholders assets. It may make more economic sense to sell shares to realise profit sooner, or else than hold them for longer periods of time and assume their price will recover.managerial concerns, while recognising the issues confronting the organisation in the short term, must be centre on its long term survival, through investment, employee development and knowledge management, keystone attributes which are considered to help gain competitive advantage. However, such initiatives may impact on the profit of the company in the short term, potentially foreign with shareholders wishes.The idea that shareholders are looking for dividends at the next payout and short term profitability, while long-term planning is better for the organisation ( devote 1995 40) may be an oversimplification. Indeed, Grant suggests that cash flows, which affect share price and the continuing viability of the organisation, are key (ibid).Enron put ups an example of problematic corporate governance jumper lead to a collapse in share price and the failure of the organisation. The size of Enr on has been presented as a awkwardy for its corporate governance (Cohan 2002 280), with the suggestion that departmental managers had agendas to stick with for the benefit of their department rather than the interests of the organisation (ibid 281). It has also been suggested that elderberry bush managers were heedless to questionable practices within the organisation. Thus in the following enquiry, a senior executive, Sherron Watson, described how she met with Enrons former chairman and outlined her concerns but he didnt get it (ibid 276).While the role of managers is partly to take a long-term strategic view and facilitate the organisations act trading into the future, the motivations of managers can affect this. Particularly significant at Enron was the structure of bonuses for top-performing employees. A substantial part of the bonuses was made up of stock options, the options to taint stock at a particular price in the future (Joint Committee on taxationation 2003 13-14) . For umpteen, the preference was to dispose of such shares relatively quickly, and Enrons auditors and accountants, Arthur Andersen, advised on setting up systems to minimise tax income payments on such sales, through partnerships set up with spouses (Joint Committee on Taxation 2003 661), an indicator of the predilection for disposal rather than keeping shares in the long term. The effect of such bonus schemes would arguably be for managers to contract on short-term increases in share values rather than consider the long-term picture for the organisation.This is perhaps why Enrons activities were so cogitate on income, often through business not relating to its core activities but allowing it tax benefits (Joint Committee on Taxation 2003 21). This approach generated favourable pecuniary reports on the organisation, helping inflate its share prices. It also led to the setting up of a number of companies to hide losses so that the arrogant image of Enron could be maintained. T he financial affairs of the organisation became highly conglomerate as a result.However, the culture within Enron was highly targeted and conducive to a focus on covering ones back rather than alerting management to problems, aggravating corporate governance difficulties employees who noted such issues were motivated to conceal them due to concerns that they would lose their jobs otherwise (Cohan 2002 281). Cohan identifies the main presumptuousness of corporate governance being that employees are autonomous and rational beings (ibid 282), suggesting that psychological factors had a significant impact on Enrons corporate governance, creating cognitive biases (ibid 283) where the individual is less willing to believe evidence that causes cognitive noise with their current beliefs.Overall, the situation at Enron was one of highly complex transactions, many outside its core business, widespread practices to maximise income for the highest earning executives and a culture which helpe d bear on questionable approaches to running the organisation. As a large firm, the complexities of its corporate governance enabled both managers and the auditors to engage in self-preserving activities. When senior figures were alerted to problems, they had little awareness of many of their executives activities and the massive structure of the organisation helped those executives cover up their actions.Explain the confused types of determine strategies which companies can adopt in the face of competition in the marketplace. How would a knowledge of elasticity of accept help companies decide how to price their products?At the most basic level, pricing needs to take equal into account as prolonged sales which fail to cover cost will result in a loss. However, true costs can be actually complex to establish (Christopher and McDonald 1995 183) for example, if an organisation produces two products, it is quite subjective as to how its marketing costs, electricity costs and direc tors salaries should be allocated to overall product costs. Establishing costs of services may be particularly difficult (OConnor and Galvin 1997 177) because of the predominance of intangible elements. Pricing thus becomes quite subjective.It is therefore special K to adopt a particular strategy with pricing cost-plus pricing is used as an initial indicator of the minimum viable price to set, and then the organisation can focus on how they wish to position their product within the market and against that of the competition. Price may be total to product and brand image, and may eventually be set very much higher than production costs.For new products a lower price, reflecting a market penetration strategy (Kotler et al 1999 721), may help entrants compete with existing products. However, to avoid starting a price war with competitors (Marcous et al 2003 77), product costs must be low and barriers to other entrants high, or competitors may be in a position to lower their prices a nd the strategy could then fail (Hooley et al 2004 382). For luxury products, the brand image may be cheapened by this approach and the product perceived as low quality, reducing take aim.If product features are clearly differentiated from those of competitors, market shaving (Kotler et al 1999 720), where prices are high and the product has kudos with customers who wish to be technologically ahead of their competitors (for businesses) or friends (for consumers), may be more appropriate. This also helps the organisation cover research and development costs of bringing a new product to market.Premium pricing strategies, whether price-skimming with a new product or charging a high price for an established product, are bloodsucking on strong differentiation (Hooley et al 2004 383) luxuries such as spa treatments or designer handbags may lose their appeal and impression of exclusivity if not highly priced. Supply of such goods may also be restricted, increase demand and thus increasi ng the prices which can be charged.Items such as computer printers can be priced very cheaply and profits then made through consumables with a captive product pricing strategy (Kotler et al 1999 723). Purchasers can compare the printer features and price easily with competing products, but cost of consumables will be very much harder to assess as it will depend on ink consumption. Margins on the printer may be very small, but comparatively large on the consumables shaves and razor blades provide a similar example.Price signalling (OConnor and Galvin 1997 177) involves sending a strong message to competitors regarding the organisations low costs and efficiencies, deterring them from trying to compete, although this can be a high risk strategy if competitors can copy the organisations model.Pricing strategy has perhaps been neglected in some of the literature Hooley et al (2004), for example, writing on competitive strategy, discuss pricing only very briefly. Because of widespread in creases in efficiency in recent years, trying to gain competitive advantage on cost may be a particularly risky strategy for any organisation. However, the current economic downturn may result in consumers steering increasingly on price rather than product features.Within pricing strategy, the ideal price is that which maximises profit. A low margin with high demand may generate as much profit as a high margin with low demand. The concept of price elasticity of demand reflects how much a change of price affects demand (Marcous 2003 58), with each deliberate in per centPrice elasticity of demand = change of demand (%) (Mercer 1996 246)change of price (%)If the price elasticity is known, prices can be set to maximise profits. However, its measurement is difficult. Analysing existing data on price and demand can give some indication (Mercer 1996 249), but it is not feasible to isolate data from other factors. For example, the current economic concerns are leading to UK shoppers swit ching to lower priced supermarkets, even though the premium supermarkets are not increasing their prices. Other factors which may affect demand when price is not changed include the availability of substitutes, consumers loyalty to particular brands and the extent to which the product is a necessity. Technically, such factors are not price elasticity, but a more general elasticity (ibid 246), but they limit the applicability of available data.Surveys of consumers postulation how much they would be prepared to pay for a product may give some indication of price elasticity (ibid 249), but answers given over in surveys may not be consistent with behaviour. Experimenting with prices may provide useful information (ibid 249), but runs the risk of reducing profit by testing prices which are found to be unsuitable. Another option is to harken to anecdotal evidence from sales staff which may help channelize customer attitudes however, sales staff may be motivated to have targets strang led and report high numbers of customers ref development to buy, or customers could be using a negative response to price as a negotiating tool.comparatively inelastic price elasticity is ideal for companies as it gives them the freedom to raise prices without demand being significantly affected (Marcous et al 2003 60). This is easier to achieve if a product is perceived as being different from (and better than) competitors products.What have the main demand and supply factors that have determined the general increase in global food prices over the last years? food for thought prices have risen considerably in recent years, not only in countries importing foodstuffs but also in areas where food production is high. There are a number of reasons for this.As globalisation has increased, certain nations, notably the BRIC countries (Brazil, Russia, India and China) have seem rapid economic growth and increased demand for a wide range of products. These emerging economies are give rise t o newly affluent populations whose dietary habits are changing to reflect their higher incomes. This is seen, for example, in India although vegetarianism is widespread, meat consumption has risen 40% in 15 years (FT.com 2008). Using grain to feed livestock and then using the livestock to feed humans is a less economical way of utilising the grain than it going direct to feed humans, placing additional demands on agricultural production. Dairy consumption in India is also increasing, leading to supply problems as sufficient milk cannot be produced (ibid). Again, foodstuffs are needed for dairy herds, utilising agricultural demean that might otherwise produce crops for human consumption.The rise of supermarkets has led to changes in obtain patterns in India (ibid), but supermarket expansion has been global. shop in this way means that larger quantities are purchased but that shopping trips are typically made less frequently. Purchasing for several age ahead may result in over-buy ing, and concern has been expressed regarding the number of food thrown away in the UK because of deterioration (Smithers 2007). Three-for-two and similar offers may increase impulse buys and over-purchasing (ibid), and high levels of wastage are also attributed to lack of meal planning by consumers prior to shopping and inadequate storage of spoilable items (ibid). According to economic theory, increased demand pushes prices up, particularly as supplies become depleted, suggesting that more careful shopping could result in a price reduction.The systems of subsidies offered to farmers have taken agriculture in a direction that further threatens food supplies by encouraging the planting of crops for bio fuels, particularly in the US where targets for bio fuels have been set (ibid). As an alternative to fossil fuels, bio fuels may offer an infinite source of energy however, there are the costs and power associated with processing the crops before they can be used as fuel, and all(p renominal) processing stage in the food chain adds cost and inefficiency.Where subsidies are available, it is in farmers interests to grow large quantities, but if the subsidy system does not reflect the demand for food, then the use of the land is inefficient at addressing upgrade food prices. Harvey suggests that the pattern of UK agriculture in the 1950s, with wide use of pasture to feed livestock and to help maintain nutrient militia in the soil, with grain crops rotated to rest each area of land regularly, produced smaller crop yields but required far less input, with overall food output per acre higher than through intensive methods used immediately (2008).It should be noted that many food prices are coming down, particularly wheat which has dropped 50% in a year (Harvey 2008). The difficulty occurs because of aleatory crops, and the reason for such excitableness is climate-based.Climate change has impacted on crops, with weather patterns increasingly more extreme (FT.com 2008). While this has enabled crop growth further north than ever before, it has limited production in, for example, Southern atomic number 63 where there has been a problem with heat waves, not only affecting crop growth but resulting in fires (for example, in Greece in 2007) which can destroy crops. Many areas of the world, from the UK to Bangladesh, experience regular flooding which can bang up crops and limit the use of land in floodplains which, in drier conditions, is particularly fertile. Conflict has also resulted in agricultural land being unavailable for use, for example in Sudan, where 80% of agricultural land is out of use (Rice 2008).The increase in oil prices has affected the operation of agricultural machinery and enamor costs in recent months although the price has now fallen again, volatility in the markets can contribute to difficulties as producers struggle to plan and figure for production. Power to produce and process food has become increasingly expensive.O verall, the rise in food prices can be seen as a effect of increased global demand coinciding with increasing practical difficulties and emerging costs of production.ReferencesBlythman J (2005) Shopped (London Harper Perennial)Christopher M and McDonald M (1995) Marketing An canonical Text (Basingstoke/London Macmillan)Cohan J (2002) I Didnt Know and I Was Only Doing My Job Has Corporate Governance Careered Out of Control? A Case Study of Enrons data Myopia in ledger of Business Ethics Vol 40 pp275-299Ft.com (2008) Why are food prices rising? available at media.ft.com/cms/s/2/f5bd920c-975b-11dc-9e08-0000779fd2ac.html?from=foodcrisis accessed 20/11/08Grant R (1995) Contemporary dodge Analysis 2nd chance variable (Cambridge MA/Oxford UK Blackwell Business)Harvey G (2008) Time to go against the grain in The protector golf-club News and Features 5/11/2008 p7Hooley G, Saunders J and Piercy N (2004) Marketing Strategy and Competitive Positioning 3rd Edition (Harlow Pearson Educati on)Joint Committee on Taxation (2003) Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, and Policy Recommendations Volume I Report (US Senate-Commissioned Report) www.house.gov/jct/s-3-03-vol1.pdfKotler P, Armstrong G, Saunders J and Wong V (1999) Principles of Marketing 2nd European Edition (London Prentice Hall Europe)Koutsoyiannis A (1983) Modern Microeconomics 2nd Edition (London/Basingstoke Macmillan)Laidler D (1982) Introduction to Microeconomics 2nd Edition (Oxford Philip Allan)Marcous I, Gillespie A, Martin B, Surridge M and Wall N (2003) Business Studies 2nd Edition (Abingdon Hodder Arnold)Mercer D (1996) Marketing 2nd Edition (Oxford/Cambridge MA Blackwell Business)Milmo D (2008) Executives face cost over fuel surcharge fixing by BA and Virgin in The Guardian 08/08/08 p14OConnor J and Calvin E (1997) Marketing and Information Technology (Harlow Financial Times/Prentice Hall)Office of Fair Trading (2003) The Ca rtel Offence (London Office of Fair Trading)Office of Fair Trading (2008) Market Investigation into the Supply of Groceries in the UK available at www.competition-commission.org.uk/rep_pub/reports/2008/fulltext/538.pdf accessed 20/11/08Rice X (2008) Abu Dhabi develops food farms in Sudan in The Guardian International Section p16 2/7/2008Smithers R (2007) Campaign launched to reduce UKs 8bn food waster mountain in The Guardian 2/11/07 p7www.opec.org

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