FIVE COMPETITIVE FORCES SUPPLIERS: Competitive forces through bargaining and economic leverage...
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FIVE COMPETITIVE FORCES
SUPPLIERS:Competitive forces through bargaining and economic leverage
BUYERS:Competitive forces through bargaining and economic leverage
COMPETITORS:Competitive forces through rivalry of sellers in same market through price, advertising, lobbying etc.
PRODUCERSOF SUBSTITUTES:Competitive forces through rivalry of sellers in differentmarkets through price, advertising, lobbying etc.
POTENTIALCOMPETITORS:Competitive for cefrom threat of entry
UPSTREAM MARKETS
DOWNSTREAM MARKETS
VERTICAL
RELATIONS
HOR ZONTAL RELATIONSHIPS
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MARKET BOUNDARIES
• BUYER POINT OF VIEW: No potential seller exists outside of the market boundaries (within a reasonable price range)
• SELLER POINT OF VIEW: No potential buyer exists outside of the market boundaries (within a reasonable price range)
• BOTH POINTS OF VIEW MUST HOLD
• CROSS PRICE ELASTICITY measures
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MARKET BOUNDARIES
X
X
X
XX
O
O
O
X represents buyers
O represents sellers
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TYPE OF MARKET PRD DIFF. SELLERS BUYERS
MONOPOLYOLIGOPOLYMONOPOLISTIC COMPETITIONCOMPETITIONMONOPSONYOLIGOPSONYBILATERAL MONOPOLYBILATERAL OLIGOPOLY
UNIQUE ONE MANY - FEW MANYPRD DIFF. MANY MANY
STANDARD MANY MANY- MANY ONE- MANY FEW
- ONE ONE ONE FEW- FEW ONE FEW FEW
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TYPE OF MARKET OBJECTIVE P Q PRO- EFFI FIT CIENTMONOPOLYOLIGOPOLY InterdependenceMONOPOLISTIC COMPETITIONCOMPETITIONMONOPSONYOLIGOPSONYBILATERAL MONOPOLYBILATERAL OLIGOPOLY
S.Run Profit Large Not Mkt. Share Med. NotHorizontal W A RCustomer None Exc. Loyalty Cap.Min Cost Lowest HighestNone YesMin Price Yes NotMin Price Yes NotMax Share ? Vertical of Profit W A RMax Share ? Vertical of Profit W A R
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CHARACTERISTIC MONO- OLIGO- MONO- COM- POLY POLY POLIS- PETI- TIC C. TION STRUCTURE # firms? differentiated? entry is: market power?CONDUCT: interdependece?Marginal Cost Pricing?PERFORMANCE: High prices? Economic Profits?Efficient capacity util? Efficient investment? Allocatively Efficient?
One Few Many ManyUnique ? Yes NoBlocked Impeded Easy EasyYES YES YES NO
NO YES NO NO NO NO NO YES
Yes Yes Yes No Yes Yes No No No No Under Yes No No No Yes No No No Yes
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Copiers per month (000’s)
Price ($/copier)4 COPIER PRODUCING PLANTS
LRAC(envelope)
#4#3#2
#1
Most EfficientInvestment(lowest point)
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LRAC
LRMC
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Copiers per month0 1 BILL 2 BILL 3BILL
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COMPETITION
DEMAND
LRAC
LRMCSUPPLY
MARKET FIRM POINT OF VIEW
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Price ($/copier)
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Price ($/copier)
COMPETITION
DEMAND
SRAVC
SUPPLY
MARKET FIRM POINT OF VIEW
SRMC
SRACA
BSHUT DOWN PRICE
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COMPETITION
DEMAND
LRAC
LRMCSUPPLY
MARKET FIRM POINT OF VIEW
PROFIT
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ENTRY DUE TO PROFIT
DEMAND
LRAC
LRMCSUPPLY
MARKET FIRM POINT OF VIEW
SHIFT
LOSS
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COMPETITIVE EQUILIBRIUM: THROUGH NATURAL MARKET FORCES
DEMAND
LRAC
LRMC
SUPPLY
MARKET FIRM POINT OF VIEW
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PERFECT COMPETITION
• LOWEST PRICES (P= MIN SRAC)
• NO LONG RUN PROFITS (P=LRAC)
• EFFICIENT CAPACITY (SRAC THROUGH MIN OF LRAC)
• FULLY UTILIZED CAPACITY (AT SAME OUTPUT AS MIN SRAC)
• EFFICIENT ALLOCATION OF RESOURCES (P=MC)