Market Structure and Firm Strategy

Published: 2019-11-18 09:00:00
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Economics as a discipline and financial determinant is based upon a few concepts that collectively make up the entire set up. These key concepts are wants, needs, scarcity, resources and factors of production, opportunity cost, value, utility and productivity. The sole purpose of engagement in economic activities is the generation of products and services that meet the wants and satisfaction needs of the target consumer group (Fernando, Schneible, & Tripathy, 2016). The efficiency of achievement of this economic goal can be hampered by the aspects of scarcity and choice that are challenges amounting to and directly influencing the opportunity cost. In the day to day operation of economic issues, the economist has to make firm yet effective solutions regarding various situations such as the type of good and services to put on exposure to the consumer; the best mechanisms to employ in the production of goods and service provision; and the right target group for a number of goods and services provided.

Scarcity and Opportunity Cost

There is a continuing rise in the needs and demand of people for products and services against a much static availability of resources to meet these needs and wants. This scenario leads to scarcity, which compels consumers to make choices on their preferred products and services. The availability of choice and preferences creates a trade-off situation where the choice preference for one particular product or service means is done at the cost of another forgone product or service. A simple instance that involves this is where an individuals financial prowess can only allow them to either buy a house or rent it. Whatever the choice they make, it is possible that they have to make decisions involving risk taking and the other need is sacrificed at the expense of the other (Raiklin & Uyar, 1996). This is what is termed as the opportunity cost, also known as the cost of the best forgone alternative. For instance, the opportunity cost of surpassing ten hours of extra job activity paying six dollars per hour amounts to sixty dollars of forgone wages.

Due to the wide array of economic aspects in play, it is important for a firm to employ some key economic managerial tools in its management and operation. Such decisions are essential since they involve mechanisms that select the best alternatives for the firm within a large amount of opportunities available. The decisions settled for must be appropriate to the current needs of business operation and profitability. This is necessary due to the increasingly complex and competitive business conditions in the contemporary setup. These basic economic managerial tools include;

Opportunity cost- this calls for the certainty in making key economic sacrifices.

Increment principle- this is akin to the marginal cost and revenues discussed in economic theory. This principle helps evaluate the effect of alternative decisions on the costs and revenues of prices, products and investments.

Principle of time perspective- This principle helps evaluate the impact of short term and long term economic decisions on the costs and revenues of the firm. There should be a possibility of establishing equilibrium between the long term and short term business aspects.

Discounting principle- a decision made today is worth than the same decision made in the following day as the impact can be realized there and then.

Equi-marginal principle- this principle helps in the equal allocation of resources to available economic alternatives with each sharing the last value.

Based on these economic principles and managerial tools, various forms of market structures exist. These market forms include the markets of perfect competition; monopolistic competition; oligopoly and monopoly. These structures are created by the competition for various products and services and the number and knowledge of target consumers.

Perfect Competition:

Characterized by no direct rivalry between firms within the market, the market consists of a large number of knowledgeable buyers and sellers and there are no strict regulations to the trading activities. There is no preference or choice by the customers since there is a homogenous product on trade by the participating firms. This prompts for free entry and exit of firms within the market.

Monopoly Competition

In this market structure, a single seller firm bars the entry of other firms into the market with no close substitutes to its products. In various instances, the monopolist is the industry and controls the industry demand curve. The demand curve of the monopolist slopes downwards to the right side and can therefore increase the amount of sales of its products and services through relatively reduced prices. This is common when the need to sell an additional unit rises.

Duopoly

This market is more or less similar to the oligopoly except for the firms involved are two, with no agreements between them. In case either of the firms changes their prices, the other is affected.

Oligopoly

Here there are a few firms trading in differentiated products, with the action of one firm likely to affect the others. This market is characterized by interdependence among the sellers within the market. Due to the high presence of competition there is a high investment in advertisements to match up the product exposure to the customers.

With no ascertained patterns of production, the demand curve in such a market is also undefined.

Monopolistic Competition

In this market structure, there are many firms selling a homogenous product. The products sold by the various producers closely but not perfectly resemble each other. The firms in this kind of market enjoy the freedom of entry and exit within the market and each operates under their own policies. No single firm controls the demand for any portion of the products output and therefore, the demand curve is elastic, though not perfectly.

Economic Trends

The economic trends have greatly impacted the lives and working places of people and the political shape up of various nations in recent times. These effects ranging from flow of populations, to migrations and socio-cultural changes have greatly impacted the lives of many. To the negative side, there has been involved in illegal trades and movements across boundaries to satisfy the various economical needs of individuals. Ethnical and political conflicts have also been spiced following the pursuit of economic dominance and satisfaction among various groups and countries. An instance is the war torn sub-Saharan Africas Sudan, where the fight for oil mines and related resources have caused much tension, deaths and territorial divisions.

Study Case: Online Cook Books Business

References

Fernando, G., Schneible, R., & Tripathy, A. (2016). Firm strategy and market reaction to earnings. Advances In Accounting, 33, 20-34. http://dx.doi.org/10.1016/j.adiac.2016.04.006Raiklin, E. & Uyar, B. (1996). On the relativity of the concepts of needs, wants, scarcity and opportunity cost. International Journal Of Social Economics, 23(7), 49-56. http://dx.doi.org/10.1108/03068299610122416

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