Business Economics
In present economic scenario the level of competition has increased significantly. Such level of competition has been accelerated after globalisation. Globalisation is one of the phenomena that increased the interaction between various countries commercially, economically and socially. After globalisation there has been increased integration among the countries and the trade relations have increased. Due to the fact, the global competition has increased and thus the companies had to face not only local competition but they had to face local competition as well. Thus it is very important to establish core competencies and gain competitive advantage in the market. These firms try to gain larger market share in the industry and achieve a competition position from the other firms in the market. Here it can be said that there are various factors that can significantly affect the competitive position of a business unit in the industry. The business units have to consider the market structure like whether they are operating in a perfectly competitive market or in a monopolistic market. There are also two market structures in between that are monopolistic competition and oligopoly (Hubbard and O’Brien, 2013). The demand condition and the taste and preference of the consumers in the market can also affect the market. It is argued that the recent price wars in the supermarket and mobile phone industry can significantly benefit both the consumers and the respective industries. So the main aim of the assignment analyse the fact critically by using various models.
Price Wars in Supermarket and Mobile Phone Industry:
It is known that after globalisation there has been extensive interaction between various industries at the local and global level and that has increased the level of competition. It is evident that there has been extensive price war recently in the mobile phone industry and in the supermarkets. The main reason for such competition can be development of many companies offering the products at a competitive price to the consumers. There are various international companies that have extended their operations in most part of the world and thus the level of competition is higher (Kreps, 2013). Here it can be said that the supermarkets and the mobile phone industry operates under the monopolistic competitive market.
It is known that in a monopolistic competitive market is the combination of two extreme market structures that are perfect competition and monopoly and thus the market structure has some of the features of a monopolistic market and some features of a competitive market. The supermarkets and the mobile phone market operate under a monopolistic competition as these industries also sells products that are close substitutes of each other. The products are not completely homogenous, they are differentiated and there are many sellers and many buyers in the market. No single seller or buyer can affect the price prevailing in the market but the firms have certain degree of market power (Krugman and Wells, 2013). That means they have certain degree of control over the terms of exchange. There is no entry or exit cost. The firms ignore the impact of its own prices on the prices of others and it takes the price charged by the rivals as given. In the monopolistically competitive market the equilibrium occurs at the point where the marginal revenue (MR) of the firm equals the marginal cost (MC) and at that point the profit can be maximised and the firm collects the price on the basis of the Average revenue (AR) curve. Non price competition is one of the features of monopolistic competition and the firms engage in such fights by implementing various strategies like advertising, brand perception establishing, promoting etc (Parkin, 2012).
Source: (Economicsonline.co.uk, 2014)
The demand in the industry is increasing significantly as various economies are modernising. Thus the supply of products also increased as many firms entered the market. Here it can be said that due to higher competition, the firms have involved in price wars. That means the companies tend to lower their prices for attracting more consumers in the market and gain higher market share. Here it can be said that such trend in the mobile phone and supermarket has helped in lowering the inefficiency that is caused by the imperfections in the market. As the firms are involved in price war, they lower their prices to the competitive level for gaining larger market share and thus the monopolistic competitive market moves towards the perfectly competitive market structure (Parkin, 2012). This can be beneficial for the consumers as well as the industry as the level of competition is increasing and such competition can make the industry more efficient in terms of product quality and price and the consumers will be benefitted as well because they can enjoy the high quality products at a lower price (Pindyck and Rubinfeld, 2013).
In this context it can be said that these are the main factors that can influence the optimum size of the product in the market and the demand and supply relationship in the market also affects the equilibrium quantity in the market. There are some other factors that can affect the equilibrium position of the product in the market and these are the price discrimination and the opportunity cost of various decisions in the industry. The monopolistic firms are sometimes involved in price discrimination (Pindyck and Rubinfeld, 2013). That means they offer the same product at a different prices to different consumers for absorbing the consumer surplus. On the other hand the firms have to minimise the opportunity cost as well by choosing the best possible alternative. So these are main factors that can affect the optimal decision in the market.
Cost Structure Trends and the Mobile Phone Industry:
The cost of mobile phones has decreased significantly in recent years due to technological advancements and various strategic implementations of the firms. Thus the companies can lower the price of the products as well and this has led to the price war among the companies. It is said that due to the lower cost and the resultant lower price a large segment of population will be able to buy the product and the mobile telephony will be more affordable to a much larger segment in the emerging markets populations (Pindyck and Rubinfeld, 2013). It is known that in a competitive market the prices are more competitive and it depends upon the demand of the products in the market. Thus it is expected that when the price of the product will fall the demand for the product will increase as there is elastic demand for the products in the market. Thus it can be expected that the demand for the product will increase and more people will be able to afford the product in the market. Now the cost structure of a product can be discussed here.
It is known that there are basically two parts of a cost structure and these are fixed cost and variable cost. The fixed cost can be referred as those costs that are fixed and that does not depend upon the quantity produced. For example, salaries, rent etc. on the other hand the variable costs are those costs that depend upon the level of production and it varies with the quantity of goods produced by the producer (Sloman, Wride and Garratt, 2012). The examples of variable costs are the costs of transportation, raw materials, inventory costs etc. In the following diagram the fixed cost and the variable cost can be shown.
The macroeconomic factors can also affect the market structure in the industry. It is very important to incorporate the social goals in the macroeconomic objectives and that can help the entire economy. It is evident that there are various macroeconomic factors and objectives of an economy like achieving higher GDP growth rate, lowering unemployment and inflation, promoting growth and development and stabilising the exchange rate. Various fiscal and monetary policy measures are undertaken for achieving these goals in the economy and it is also evident that various industries can also help in improving the economic condition of a nation. But it is also evident that the economic theories cannot be applied in each and every scenario. There can be various exceptions in a real life situation and that can create difficulties in applying the theoretical concept in the practical situation (Sloman, Wride and Garratt, 2012). There are certain assumptions that are taken into consideration while establishing these theories but these assumptions are not always true in real scenario. There can be various factors impacting the relationships in an economy and thus the theoretical model cannot be applied in every scenario.
Conclusion:
In conclusion it can be said that even though the economic theories have several limitations but these theories have credibility in terms of enlightening on the topic and providing a specific scenario for the economic factors in a market. Here it can be concluded that in the mobile phone market, due to increased competition the efficiency in the market is increasing significantly and that is also beneficial for the consumers in the market. Due to technological advancements the cost of the products has decreased and this has made the products affordable for a large group of customers.
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