Market Structures and Pricing
Market structures and pricing
Revenues
Consumers
* Inverse demand curve gives willingness-to-pay * Benefit consumer(s) derive(s) from additional good; * Area under inverse demand curve measures total willingness-to-pay, total benefit or total surplus. * Maximum price I can charge as producer determined by inverse demand function * Marginal revenues; revenue of next unit I sell
Strategies * Profit maximization * Marginal profits equal to 0 (MR=MC) * Classic economic theory; entrepreneurial capitalism * Owner makes strategic decisions * Managerial capitalism; * Ownership changed * Control changed * Potential conflicts between shareholders and management * Firms got bigger: coordinate difficulties * Revenues maximization * Decreasing revenues bad for image * Financial institutions want certainty * Low revenues mean relatively high risk for suppliers * Low revenues may lead to budget cuts, including management * Bonus * MR=0 * Marketing effort * Managerial utility maximization * Managers maximize own satisfaction * Growth maximization * Long term strategy * Behavioral theories * Different groups, satisfy all groups to survive: satisfying * Altruistic objectives: public interest * Welfare maximization * What strategy is relevant? * Autonomy and income advancement * Successful business is most important personal objective * Growth objective * Profit maximization * Model * Economic profit ≠ accounting profit
Market structures * Perfect competition * Monopolistic competition * Oligopoly * Monopoly
Perfect competition * Many (small) suppliers and buyers: ‘price takes’ * Demand function for individual company * Products are perfect substitutes * Free entry and exit * Information is perfect (available to all no
Revenues
Consumers
* Inverse demand curve gives willingness-to-pay * Benefit consumer(s) derive(s) from additional good; * Area under inverse demand curve measures total willingness-to-pay, total benefit or total surplus. * Maximum price I can charge as producer determined by inverse demand function * Marginal revenues; revenue of next unit I sell
Strategies * Profit maximization * Marginal profits equal to 0 (MR=MC) * Classic economic theory; entrepreneurial capitalism * Owner makes strategic decisions * Managerial capitalism; * Ownership changed * Control changed * Potential conflicts between shareholders and management * Firms got bigger: coordinate difficulties * Revenues maximization * Decreasing revenues bad for image * Financial institutions want certainty * Low revenues mean relatively high risk for suppliers * Low revenues may lead to budget cuts, including management * Bonus * MR=0 * Marketing effort * Managerial utility maximization * Managers maximize own satisfaction * Growth maximization * Long term strategy * Behavioral theories * Different groups, satisfy all groups to survive: satisfying * Altruistic objectives: public interest * Welfare maximization * What strategy is relevant? * Autonomy and income advancement * Successful business is most important personal objective * Growth objective * Profit maximization * Model * Economic profit ≠ accounting profit
Market structures * Perfect competition * Monopolistic competition * Oligopoly * Monopoly
Perfect competition * Many (small) suppliers and buyers: ‘price takes’ * Demand function for individual company * Products are perfect substitutes * Free entry and exit * Information is perfect (available to all no