• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Pricing Power for Businesses
 

Pricing Power for Businesses

on

  • 1,598 views

A2 economics revision presentation on aspects of market power and pricing power

A2 economics revision presentation on aspects of market power and pricing power

Statistics

Views

Total Views
1,598
Views on SlideShare
905
Embed Views
693

Actions

Likes
0
Downloads
58
Comments
0

5 Embeds 693

http://www.scoop.it 646
http://bkharris.wikispaces.com 43
http://learn.parmiters.herts.sch.uk 2
http://www.linkedin.com 1
https://twitter.com 1

Accessibility

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Pricing Power for Businesses Pricing Power for Businesses Presentation Transcript

    • A2 Micro Market Power, Pricing Strategies, Economic Efficiency and Welfare
    • Market Share and Market Power Market share is not the same as market power! First-Mover Advantages for Apple?
    • Market Shares in Retail Banking Personal current accounts 2010 market share (%) Lloyds TSB / Halifax Bank of Scotland 30 Royal Bank of Scotland Group (RBS) 16 HSBC (including First Direct) 14 Barclays 13 Santander (Abbey, Alliance & Leicester) 12 Nationwide Building Society 7 Co-operative Bank 3 National Australia (Clydesdale & Yorkshire Bank) 2 Source: Office of Fair Trading 5 Firm Concentration Ratio here is?
    • Market Shares in Retail Banking Personal current accounts 2010 market share (%) Lloyds TSB / Halifax Bank of Scotland 30 Royal Bank of Scotland Group (RBS) 16 HSBC (including First Direct) 14 Barclays 13 Santander (Abbey, Alliance & Leicester) 12 Nationwide Building Society 7 Co-operative Bank 3 National Australia (Clydesdale & Yorkshire Bank) 2 Source: Office of Fair Trading 5 Firm Concentration Ratio here is? 85%
    • The Reality of Market Power Pricing Power Influence over regulators Entry Barriers Economies of Scale Buying Power Supply Chain Control
    • Industry Leadership Benchmark Businesses Market power is often self-reinforcing Profits to re-invest Habitual consumption
    • Industry Leadership Benchmark Businesses Market power is often self-reinforcing Profits to re-invest Habitual consumption Innovative businesses can disrupt dominance
    • Economic Efficiency Use efficiency concepts in all answers
    • Main types of economic efficiency Allocative Where price = MC Productive Dynamic Producing at the lowest point of the average cost curve Changes in the choices available in a market over time
    • Dynamic Efficiency
    • Allocative Efficiency – Competition / Pure Monopoly Cost & Price Perfectly Competitive Market Entry of new firms drives price lower S1 P1 S2 P2 D1 MC AC Output (Q)
    • Allocative Efficiency – Competition / Pure Monopoly Cost & Price Perfectly Competitive Market Entry of new firms drives price lower S1 P1 S2 P2 D1 MC AC P1 P1 Q1 Output (Q)
    • Allocative Efficiency – Competition / Pure Monopoly Cost & Price Perfectly Competitive Market Entry of new firms drives price lower Cost & Price Pure Monopoly Market S1 P1 S2 P2 D1 P2 MC MC AC AC P1 P1 MR Q1 Output (Q) Q2 Monopoly demand (AR) Output (Q)
    • Allocative Efficiency – Competition / Pure Monopoly Cost & Price Perfectly Competitive Market Entry of new firms drives price lower Cost & Price Pure Monopoly Market S1 P1 S2 P2 D1 P2 MC MC AC AC C2 P1 P1 MR Q1 Output (Q) Q2 Monopoly demand (AR) Output (Q)
    • Allocative Efficiency – Competition / Pure Monopoly Cost & Price Perfectly Competitive Market Entry of new firms drives price lower Cost & Price Monopoly Profit P>MC Loss of allocative efficiency S1 P1 Pure Monopoly Market S2 P2 D1 P2 MC MC AC AC C2 P1 P1 MR Q1 Output (Q) Q2 Monopoly pricing can lead to deadweight loss of consumer welfare Monopoly demand (AR) Output (Q)
    • Smart Analysis: Huge market growth
    • Falling prices for smartphones According to one forecast, the global smartphone market will grow 34 per cent over the next twelve months with sales of 285m units in 2013 but average selling prices of smartphones will fall 9 per cent to $273.
    • Smartphone Market Share (2012) Smartphone Market Share (% of Global Sales, Q3 2012) Samsung 22% Nokia 19% Apple 5% RIM (Blackberry) 2% HTC 4%
    • Smartphones – A Decreasing Cost Industry? Cost & Price Internal Economies of Scale and the Price of Smartphones Profit maximising price when costs are high is P1 and Q1 P1 MC1 AC1 MC2 AC2 AR MR Q1 Output (Q)
    • Smartphones – A Decreasing Cost Industry? Cost & Price Internal Economies of Scale and the Price of Smartphones Profit maximising price when costs are high is P1 and Q1 When economies of scale are achieved, the profit-maximising price falls to P2 and output expands to Q2 P1 MC1 AC1 P2 MC2 AC2 AR MR Q1 Q2 Output (Q)
    • Smartphones – A Decreasing Cost Industry? Cost & Price Internal Economies of Scale and the Price of Smartphones Profit maximising price when costs are high is P1 and Q1 When economies of scale are achieved, the profit-maximising price falls to P2 and output expands to Q2 P1 MC1 AC1 P2 MC2 AC2 C2 AR Q2 And higher profits for manufacturers of smartphones! Supernormal profit! MR Q1 Economies of scale mean lower prices for consumers Output (Q)
    • Smartphones – A Decreasing Cost Industry? Cost & Price External economies of scale (EEoS) External Economies of Scale in Smartphone industry When the long-term expansion of an industry leads to the development of ancillary services which benefit suppliers in the industry LRAC1 Output (Q)
    • Smartphones – A Decreasing Cost Industry? Cost & Price External economies of scale (EEoS) External Economies of Scale in Smartphone industry When the long-term expansion of an industry leads to the development of ancillary services which benefit suppliers in the industry • Industry expertise / skilled labour • Relocation of key supply businesses • Investment in infrastructure • Links with universities and other research businesses LRAC1 LRAC1 with external economies of scale Output (Q)
    • Intense competition What factors other than cost might help to explain why average selling prices of smartphones are expected to fall by nearly 10 per cent in 2013? Emerging Markets Substitute Devices Satisficing Behaviour Pricing behaviour often reflects the different strategic objectives of businesses
    • Get help from fellow students, teachers and tutor2u on Twitter: #econ3 @tutor2u_econ