Business Economics
In the present economic scenario, the level of competition has increased significantly. This level of competition has been accelerated after globalisation, which is one of the phenomena that increased the interaction between various countries commercially, economically, and socially.
After globalisation, there has been increased integration among countries, and trade relations have increased. Due to this, global competition has increased, and thus, companies have had to face not only local competition but also local competition.
Thus, it is very important to establish core competencies and gain competitive advantage in the market. These firms try to gain a larger market share in the industry and achieve a competitive position from the other firms in the market.
Various factors can significantly affect a business unit’s competitive position in the industry. The business units have to consider the market structure, such as whether they are operating in a perfectly competitive market or a monopolistic market.
There are also two market structures in between 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 industries can significantly benefit both consumers and the respective industries. So, the main aim of the assignment is to analyse this fact critically 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 levels, and that has increased the level of competition. It is evident that there has been an extensive price war recently in the mobile phone industry and in the supermarkets.
The main reason for such competition can be the 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 parts 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 operate under a 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 monopolistic competition, as these industries also sell products that are close substitutes for 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 a certain degree of market power (Krugman and Wells, 2013). That means they have a certain degree of control over the terms of exchange. There is no entry or exit cost.
The firms ignore the impact of their own prices on the prices of others and take the price charged by the rivals as given. In the monopolistically competitive market, equilibrium occurs at the point where the marginal revenue (MR) of the firm equals the marginal cost (MC). 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 firms engage in such fights by implementing various strategies, such as advertising, brand perception establishment, and promotion (Parkin, 2012).
Source: (Economicsonline.co.uk, 2014)
The industry’s demand is increasing significantly as various economies modernise. Thus, the supply of products also increased as many firms entered the market. Due to higher competition, the firms have been involved in price wars.
That means the companies tend to lower their prices to attract 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 a price war, they lower their prices to a competitive level to gain larger market share, and thus, the monopolistic competitive market moves towards a 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. 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 different prices to different consumers to absorb 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 the 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 the population will be able to buy the product, and mobile telephony will be more affordable to a much larger segment of the emerging market 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, the demand for the product can be expected to increase, and more people will be able to afford it. Now, the cost structure of a product can be discussed here.
It is known that there are basically two parts of a cost structure: fixed costs and variable costs. Fixed costs are those that are fixed and do not depend upon the quantity produced, such as salaries, rent, etc.
On the other hand, variable costs depend upon the level of production and vary with the quantity of goods produced by the producer (Sloman, Wride, and Garratt, 2012). Examples of variable costs are transportation costs, raw materials costs, inventory costs, etc. The following diagram shows the fixed cost and the variable cost.
Macroeconomic factors can also affect the industry’s market structure. It is very important to incorporate social goals into the macroeconomic objectives, and that can help the entire economy. There are various macroeconomic factors and objectives of an economy, like achieving a 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.
Various exceptions can exist in a real-life situation, which can make it difficult to apply the theoretical concept in a practical situation (Sloman, Wride, and Garratt, 2012).
Certain assumptions are considered while establishing these theories, but these assumptions are not always true in a real scenario. Various factors can impact the relationships in an economy, and thus, the theoretical model cannot be applied in every scenario.
Conclusion:
In conclusion, although economic theories have several limitations, they are credible in terms of enlightening the topic and providing a specific scenario for the economic factors in a market.
It can be concluded that in the mobile phone market, due to increased competition, efficiency is increasing significantly, which is also beneficial for consumers. Technological advancements have decreased the cost of products, making them affordable for a large group of customers.
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