| Perfect Competition | Monopolistic Competition | Oligopoly | Monopoly | |
| Number of firms | Very Many | Many / Several | Few | One |
| Freedom of Entry | Unrestricted | Unrestricted | Restricted | Restricted or completely blocked |
| Nature of Product | Undifferentiated | Differentiated | Undifferentiated or differentiated | Unique |
| Implications for demand curve | Horizontal: firm is a price taker | Downward sloping but relatively elastic | Downward sloping. Relatively inelastic | Downward sloping: more inelastic than Oligopoly. |
| Average size of firms | Small | Small to Medium | Medium to Large | Very Large Firms |
| Possible consumer demand | Perfect elastic | Relatively elastic | Kinked Demand curve | Inelastic demand |
| Profit making possibility | Normal profit in the long run | Normal Profit | Economicprofit | Economicprofit |
| Government intervention | None | None | Unregulated | Taxes and proce setting |
| A new example | Wheat and corn (commodities) | Toothpaste, Software | Automobiles, Airlines | Utilities (Gas, Water, Electricity) |
| Ability to Control Prices | None | Little | Little | High |
Thursday, 14 June 2012
Comparing Market Structures (Exercise 9-2)
Tuesday, 12 June 2012
Defining Oligopoly and Game Theory (Exercise 8-1)
Compare an oligopoly market to a perfect competition and monopolistic competition type of market. The similarities and differences between each type of market
Oligopoly Market
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Perfect Competition
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Monopolistic Competition
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Dominated by a few large firms
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Large number of buyers and sellers
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Many small firms
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Entry by new firms is difficult
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Easy entrance into and exit from the market
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Easy entrance into and exit from the market
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Each firm has significant control over its’ prices
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Do not have control over its’ prices
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Some control over price
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Mutual interdependence exists between firms
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there are many substitutes for products in this market
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There are differentiated products
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What is the market type you consider the best choice. Explain why.
Perfect competition is the best market because as a consumer you have more choices and places to buy the same products from. The businesses need to be conscience of what they are charging or consumers will take their business elsewhere. The consumers have more control over the market and the price of the products in this type of market.
With your new knowledge, how do you feel as a consumer?
Do you feel in control of your purchasing choices?
Yes for the most part because there are many differentiated products and substitute products so I do not have to pay more than I feel a certain product is worth. Because we have competition there are sales and firms need to be conscience about the price they are charging giving the consumer more control over the market and prices.
What are the main ideas behind game theory?
Game theory uses mathematics to represent and capture behavior in specific strategic situations (or games) in which the success of an individual's choices is directly linked to the choices of others.
How did it develop?
Game theory was originally developed to analyze competitions where one individual achieves better results at another individual's expense. Today game theory is applied to several interactions across many fields.
Is there evidence of game theory in the current economy? Explain.
Yes. There is evidence of game theory because of competition. Why when two businesses that start up at the same time with very similar products priced about the same does one go on to be very successful and the other may not and close down. This is game theory. One competitor achieved better results at the other’s expense. An example of this is Blue Ray technology by Sony and HD DVD technology. They were two products that were released around the same time that were very similar products but Sony Blue Ray technology beat out HD DVD technology and you can no longer buy HD DVD players or disks only Blue Ray.
How does the payoff matrix work?
A payoff matrix is a decision analysis tool that summarizes pros and cons of a decision in a tabular form. It lists payoffs (negative or positive returns) associated with all possible combinations of alternative actions (under the decision maker's control) and external conditions (not under decision maker's control).
Describe the principles behind collusive and cartel actions.
A cartel is an agreement among competing firms or organizations. Cartel members may agree to price fixing, market shares, bid rigging, division of profits, allocation of territories, allocation of customers or any combination of these. The point of collusive actions is to increase profits for each individual member by reducing competition.
Sources
Monday, 11 June 2012
Defining Monopolistic Competition (Excercise 7-1)
Size:
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Small Company
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Medium Company
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Large Company
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Features:
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River Cafe’ in Calgary
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Cuisinart
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Pepsi Co.
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Differentiated products
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They differentiate themselves by their location. They are located in a neat place on Prince’s Island park where you have to walk to get there. It is a neat dining experience compared to other high end restaurants.
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Yes – Cuisinart has very similar products to Kitchenaid but creates a difference for the consumer to see by offering a better and longer warranty/guaranty on their products
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Yes – They create this difference in consumers’ minds through their advertising. Coke puts out their product that is very similar but consumers prefer Pepsi over coke and do not consider Coke a suitable substitute because of Pepsi’s branding.
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Control over price
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They set their own prices and do not worry about the competitions. They charge what they feel their food and experience is worth without worrying about loosing business to competition.
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They don’t have control over price but they choose their price without worrying about the competitors price. They emphasize their quality and guaranteeing their products rather than being competitive with their price.
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Pepsi looks at the competitions price but could charge what they want, to an extent, without worrying about loosing consumers to the competition.
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Mass advertising
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No they do not set themselves apart but mass advertising. They do some print ads but nothing on a large scale. They use word of mouth from consumers that have dined in their restaurant.
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They do advertise on TV and in print but they do not put their emphasis on advertising.
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Yes – They pay for TV ads, print ads they sponsor pro teams and use pro athletes and celebrity’s to advertise their products. They sponsor schools so that their product is the sole product being sold in the vending machines at those schools. They are huge into advertising everywhere.
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Brand name goods
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They are not a brand name service. They have one location and that is it.
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It is a brand name that people associate with quality and their more expensive price tag.
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Yes – They spend millions of dollars a year advertising and sponsorships of events and teams to get their brand known to as many consumers as possible.
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Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location). In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.
Source
http://en.wikipedia.org/wiki/Monopolistic_competition
Competing as Starbucks (Excercise 6-2)
Starbucks is a large Seattle based company that provides barista service with fresh brewed coffee and espresso beverages among other drinks and snacks. The reason this company is considered to be a part of a perfect competition market is because…
- There are a large number of buyers and sellers in the market. There is a lot of competition from Tim Horton’s, McDonald's, A&W among the many “Mom and Pop shops” that have entered into the market.
- It is easy to enter into and exit from this market. As a result of the easy access to enter the market it creates a perfect competition because there are many products that are similar in nature and, as a result, many substitutes.
- In a perfect competition prices are determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage. If a company raises their prices and consumers are not willing to pay the higher prices then in a perfect competition market they have many substitutes and they can change where they buy that product from.
Starbucks has set themselves apart by producing an experience to coffee and drinking it. The eventual owner and chairman of Starbucks travelled to Italy and fell in love with Italian coffee bars and the romance of the coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the United States. He wanted to create a place for conversation and a sense of community. From the beginning, Starbucks wanted to be a different kind of company. By setting themselves apart from most other coffee shops the company Starbucks was able to grow into the large company it is today with over 15,000 stores world wide.
Despite the company’s success in 2008 Starbucks announced that they would be closing 600 stores in the USA. Their expansion was happening very quickly and many locations of the company were too close together. They closed 600 stores that had been recently opened, since 2005, and that were a short walk away from another Starbucks location. By closing these stores they could cut a lot of their long term and short term costs. By having too many stores you create many expenses that may not be recoverable. With more stores you have more costs such as rent, utilities, salaries, machine costs and maintenance, and more supplies to provide to each of these locations. By closing these stores Starbucks states that they believe that people will still come to Starbucks other locations that are close by thus creating a larger profit because the costs to run fewer stores is less. Despite the costs associated with closing these 600 locations, in the long run the company will be more profitable.
Even though you always hear the statement “Starbucks coffee is way to expensive, I will never pay $5.00 for a cup of coffee” people still flock to Starbucks for their coffee fix. So from the success of the company and the long line that I stand in to get my Starbucks fix, I would assume that consumers do not actually think that what Starbucks charges for their coffee experience is too much. I believe that Starbucks does so well because they brew the best coffee and espresso and that they have created the ultimate coffee experience in their stores.
If Starbucks lowered their prices I believe that they may at first show an increase in profits but I believe that the experience and the mood of Starbucks would fail and that you would eventually loose customers. With the increase in traffic the stores would most likely see they would look to simplify things and their vast menu choices that they are know for could be cut back. The quality of the product could be lost with cost and time saving processes and it would become just another Tim Horton’s with rushed service and not a quality product. In the end I believe that it would do more harm than good the Starbucks brand and experience.
Image from: http://consumerist.com/2008/05/christian-group-calls-for-boycott-over-titillating-new-starbucks-logo.html
Sources
Friday, 13 April 2012
Long Run Costs and Economies of Scale - Excercise 5-5
A business that I think would be a neat business and potentially a profitable one would be to open up a food truck restaurant. This would just be a small business for myself with one truck and two people working the truck. This would target a small market of industrial workers in select industrial areas of Calgary. I know from experiance that in these areas there is not a lot of choices for place to eat. Consumers are limited to brining a lunch from home each day, driving out of the area or at least a bit of a distance away to get to a place to eat, and for those who do not drive they may have one or two choices that are within walking distance to their office. I would like to target these ares of the city to provide these consumers with an alternative to the normal lunch choices they are exposed to.
One of the main long term expenses of opening a food truck would obviously be the truck itself. These run a high price and the payments on this vehicle would also contribute to some of the fixed costs of the business. Other fixed costs would be the insurance, rent/mortgage payments on your prep-work station (most likely in my home) and as well and the business license to operate the truck. Some other major costs to keep in mind would be the labour, cooking utensils, food and serving supplies.
I believe that a food truck in Calgary's industrial areas could be a success because of the demand for more food choices and variaty. I would have set days that I would be in certain areas of the city and each time I was in those areas I would park in a different area. Posting the times and position of my truck would be key, but with technology now I can easily start a web page and email notifications for consumers to look and see where I would be that day and at what times. The joy of having a mobile restaurant would be the ability to switch up the locations and this can target those people that do not drive and would need to walk to your location or those people that would just like to try something new.
A similar business I found was Fiasco Gellato here in Calgary. They used to operate out of a single location on 17th Avenue but due to the weather and the short summer season in Calgary and the rising costs of have a stationary location they closed down their locations and opened up a food truck. They have they same types of major expenses that I would have with a similar type of business. Their strength is that they not only sell from the truck in the warmer months but they also offer whole sale to businesses to carry their gellato year round. Due to their product the truck has an even smaller market than my lunch food truck would as consumers would most likely not line up on a nicer winter day to buy gellato, they would be more likely to line up for a warm lunch.
Image from: http://www.yycfoodtrucks.com/meet-the-trucks/fiasco-gelato-truck/ Information on Fiasco Gellato from: http://www.fiascogelato.com/
One of the main long term expenses of opening a food truck would obviously be the truck itself. These run a high price and the payments on this vehicle would also contribute to some of the fixed costs of the business. Other fixed costs would be the insurance, rent/mortgage payments on your prep-work station (most likely in my home) and as well and the business license to operate the truck. Some other major costs to keep in mind would be the labour, cooking utensils, food and serving supplies.
I believe that a food truck in Calgary's industrial areas could be a success because of the demand for more food choices and variaty. I would have set days that I would be in certain areas of the city and each time I was in those areas I would park in a different area. Posting the times and position of my truck would be key, but with technology now I can easily start a web page and email notifications for consumers to look and see where I would be that day and at what times. The joy of having a mobile restaurant would be the ability to switch up the locations and this can target those people that do not drive and would need to walk to your location or those people that would just like to try something new.
A similar business I found was Fiasco Gellato here in Calgary. They used to operate out of a single location on 17th Avenue but due to the weather and the short summer season in Calgary and the rising costs of have a stationary location they closed down their locations and opened up a food truck. They have they same types of major expenses that I would have with a similar type of business. Their strength is that they not only sell from the truck in the warmer months but they also offer whole sale to businesses to carry their gellato year round. Due to their product the truck has an even smaller market than my lunch food truck would as consumers would most likely not line up on a nicer winter day to buy gellato, they would be more likely to line up for a warm lunch.
Diminishing Returns to Tobacco Legislation Excercise 5-3
In this exercise we were asked to review the article "The Diminishing Returns on Tobacco Legislation" by Pierre Lemieux.
The issue of tobacco and it's health risks has been an issue for many years for governments. With all the research that has been done and all of the statistics about the huge health risks people still continue to smoke. The government has tried to step in with new legislation to deture people from smoking, their methods have had some success according to the article but more can be done. They have increased the prices of tobacco more than once, plastered imagery of affected organs on the packages and they have limited your access to where you can buy it to try to deture people from purchasing tobacco. Studies have shown some decrease in consumption but not as much as they would have hoped. The consumers that are most easily persuaded have quite but the those who value smoking more have not.
What more can be done to reduce consumption of tobacco? According to the article they believe that a substantially higher price increase could deture those still smoking. By increasing the sin taxes by a substantial amount you will see a decrease in consumption. As there would be no cheaper substitue to tobacco, becasue all tobacco has the same sin tax, families and individuals would no longer be able or willing to afford the cost of tobacco and the government would see a decrease in consumption.
The possible side effect of the new legislations that have been implemented and a hike in sin tax in the future could be that there would be a reduced demand for tobacco and because of this reduced demand the supply would go up and there may be a few tobacco producers and suppliers that would not be able to turn a profit and may have to close down. This would reduce the amount of tobacco that is in circulation reducing the amount available in normal markets and possibly in the black market as well.
In conclusion I think that the point of diminishing returns was from 1995 to 1999 when real prices jumped by another 48% but consumption receded by only 11% down from 1985 to 1995's increase of the real price by 52% which saw an 18% reduced consumption.
Article: http://www.pierrelemieux.org/artdiminish.html
The issue of tobacco and it's health risks has been an issue for many years for governments. With all the research that has been done and all of the statistics about the huge health risks people still continue to smoke. The government has tried to step in with new legislation to deture people from smoking, their methods have had some success according to the article but more can be done. They have increased the prices of tobacco more than once, plastered imagery of affected organs on the packages and they have limited your access to where you can buy it to try to deture people from purchasing tobacco. Studies have shown some decrease in consumption but not as much as they would have hoped. The consumers that are most easily persuaded have quite but the those who value smoking more have not.
What more can be done to reduce consumption of tobacco? According to the article they believe that a substantially higher price increase could deture those still smoking. By increasing the sin taxes by a substantial amount you will see a decrease in consumption. As there would be no cheaper substitue to tobacco, becasue all tobacco has the same sin tax, families and individuals would no longer be able or willing to afford the cost of tobacco and the government would see a decrease in consumption.
The possible side effect of the new legislations that have been implemented and a hike in sin tax in the future could be that there would be a reduced demand for tobacco and because of this reduced demand the supply would go up and there may be a few tobacco producers and suppliers that would not be able to turn a profit and may have to close down. This would reduce the amount of tobacco that is in circulation reducing the amount available in normal markets and possibly in the black market as well.
In conclusion I think that the point of diminishing returns was from 1995 to 1999 when real prices jumped by another 48% but consumption receded by only 11% down from 1985 to 1995's increase of the real price by 52% which saw an 18% reduced consumption.
Article: http://www.pierrelemieux.org/artdiminish.html
Monday, 26 March 2012
Current State of Tourism is Canada
The current state of the tourism industry in Canada is ok but it could do better. The government of Canada has recognised this and has stepped in and is now trying to lend a helping hand in promoting tourism in Canada. They have come up with more then 30 initiatives including increasing awareness of Canada as a premier tourist destination, facilitating ease of access and movement for travellers while protecting the safety and integrity of Canada's boarders, and fostering an adequate supply of skills and labour to enhance visitor experiences through quality service and hospitality. Tourism in Canada in 2010 was responsible for $73.4 billion in revenues and employs approximately 594,500 Canadians. The government has seen the importance of tourism in Canada for not only the revenues but also the jobs it creates for Canadian citizens.
The tourism industry has improved since the Canadian Government has stepped in to help out and raise awareness. Here are some stats that I found to support this statement. In 2010 international visitors made 15.9 million overnight trips to Canada up 1.8% from 2009. Canada saw gains in total overnight inbound travel in the last two quarters of 2010 of 3.3% and 3.2% after posting declines for the first half of 2010. Overall, overnight visitors spent $11.9 billion, a 3.4% rise and the average spend per trip increased by 1.6% to $750.00. Even with these promising rising numbers Canada still needs to further promote tourism from other countries and even within our own country as in 2010 Canadian outbound travel to the US and other international destinations increased by 9.5% and Canadians spent $26.5 billion during outbound overnight trips, a 10.2% increase over 2009.
I think that this type of industry would be very elastic because this is not a necessity of life. If a family's income was to drop this would be one of the first things to go. Families would not be going far if anywhere at all if they could not afford it.
http://www.thestar.com/travel/northamerica/article/1065769--help-on-the-way-for-canadian-tourism
Canadian Tourism Commission , Tourism Snapshot 2010 Year-in-Review
http://en-corporate.canada.travel/sites/default/files/pdf/Research/Stats-figures/Year-in-review-facts-figures/Tourism%20Snapshot%20-%20Year%20in%20review/yearinreview_2010_eng_final.pdf
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