Conditions and Consequences of a Price War Essay

The objective of this essay is to â€Å"use economic theory and illustrative examples to outline the circumstances under which a price war could come about and the likely consequences for the participating firms and their consumers†. A price war is a period in which multiple firms competing within the same market will react to the other firms lowering of price by lowering their own price. They have short-term and long-term advantages and disadvantages. There are many reasons for which a price war may occur, in all cases the reason for starting the price war is different but the reason for its continuation is not to lose sales. They are when a firm attempts to maximise capacity, for survival purposes, in oligopoly markets, where there are homogeneous products and when a firm adopts a penetrative pricing strategy. â€Å"Excess capacity refers to a situation where a firm is producing at a lower scale of output than it has been designed for† Excess capacity http://stats.oecd.org/glossary/ detail.asp?ID=3209 [accessed 10th December 2006] If a firm has spare capacity to produce more of a good it is likely they will use this spare capacity to profit maximise but to achieve this they will have to lower prices to increase quantity demanded (see appendix item A). As they have decreased their prices, other competitors will likely drop their prices so as not to loose customers, creating a price war. Companies who face bankruptcy may try to lower their prices so to attract more consumers and increase sales volume. However, if they cannot manage to increase volume enough to cover the fall in contribution then it will fail to cover its variable costs and will be forced to leave the market. Other firms may recognise that the company is in trouble and in a bid to force the company out the market and not to loose their own customers will drop their prices below that of the company facing bankruptcy. An oligopoly is where â€Å"a small number of firms share a large portion of the market† Economics Handbook, David Gray and Peter Clarke. In an oligopoly price is usually stable and constant as competing firms will not wish to lower price as its competitors will also drop theirs and so all they have  achieved is lowering their profit margins (see appendix item B). However, one firm may believe it stands to gain from a price-cut by believing they can under-cut the competition through economies of scale or other factors such as slow market reaction. A price war will begin as firms will drop theirs to avoid loosing customers. If in a market the goods are homogenous meaning they are the same for example utility services then price is one of the only means for a firm to distinguish it from others. In this situation a consumer will always purchase the lower priced product. This cause’s fierce pricing competition as each firm will try to maintain sales by dropping their price below the other competitors. â€Å"Penetration pricing involves the setting of lower, rather than the higher prices in order to achieve a large if not dominant market share† Pricing strategies http://www.tutor2u.net/business/marketing/pricing_strategy_penetration.asp [accessed 10th December 2006]. If this occurs the other firms in the market will recognise this and drop their own prices to stop that firm from gaining a dominant market share. The firm adopting this strategy may then also drop their prices to try continuing their pricing strategy causing a price war. This strategy can also be used to try and force firms out of the marketA price war causes more competition between firms, it has both positive and negative aspects for the consumers and the participating firms but these are different in the short-term and long-term. Competition is seen as a positive thing in any command economy. The short-run benefits for the consumer are obvious as firms lower their prices they will receive a better deal this can be seen in a movement along the demand curve, there will also be more consumer’s demanding the product for that lower price (see appendix item C). They are also likely to see improvements to the augmented products associated with the good as firms try to compete through non-pricing strategies. These services are things such as warranties, loyalty cards and other ‘extras’. The short-run effects upon the firms in the market are negative. Firm’s profits are reduced as the price of the good is reduced (see appendix item D). All firms in the industry will be forced to improve their productive efficiency to reduce total average cost, in an attempt to retain profit-margins whilst prices fall. They may also wish to attempt a heavier marketing campaign to try to distinguish itself from the other firms, but this incurs further costs for the firm. Firms are also likely to undergo a faster pace of invention and innovation as they differentiate themselves. Some firm’s in the market will be able to use their economies of scale to combat lower prices. But, other firms will not have such efficiencies and will not be able to afford variable costs and will therefore exit the market immediately (see appendix item E). The long-run affects of a price war are that a lot of firms will leave the market, this causes the demand curve to move back to its original position, which increases market-clearing price creating a long-run equilibrium and so normal profits are re-established. This is a negative aspect to the consumer’s who will have to pay more than they have in recent periods, they are also more likely to try and shop round to find the best deal. The good itself is likely to have seen technological advances as firms competed to have the most innovative product. There will also have been improved services for the consumers. The firms left in the market are likely to have better control of costs; this allows them to increase the contribution towards profits as the average total cost has been reduced of the product. In conclusion, a price war can be initiated for many reasons such as efficiency by filling up spare capacity, as a means for survival, in intense rivalry in oligopoly markets, to differentiate a product and to build up brand name or force other firms out of the market. However, the consequences are usually very similar, some firms will emerge as dominate and others will leave the market. This can have both good effects and bad effects as consumers will initially be happy with lower prices but when the long-run equilibrium comes into effect they will search harder for bargains. They will also see improvements made to the product and services. The surviving firms do well from the price war; they are likely to see higher demand for  their product, as there are fewer competitors. They also are likely to achieve greater productive efficiency and so greater profit margins. â€Å"Vigorous competition between firms is the lifeblood of strong markets and is a central to productivity and growth in the economy† International Competitiveness (2001) UK Labour GovernmentBibliography†¢Hardwick, Khan, Langmead (1994) An Introduction to Modern Economics 4th Edition†¢Lipsey, Forrest, Olsen (1993) An Introduction to Positive Accounts†¢Hunt, Sherman (1990) Economics An Introduction to traditional and radical views†¢Sloman, John (2000) Economics 4th Edition†¢Begg, David (2005) Economics 8th Edition†¢Sloman, John and Sutcliffe, Mark (2004) Economics for Business 3rd Edition†¢http://www.tutor2u.net [accessed 10th December]†¢http://en.wikipedia.org/wiki/Wiki [accessed 10th December]†¢Price War, What is it good for? http://mba.tuck.dartmouth.edu/pages/faculty/koen.pauwels/pdf/Price%20War%20what%20is%20it%20good%20for.pdf [accessed 10th December]References†¢Excess capacity http://stats.oecd.org/glossary/ detail.asp?ID=3209 [accessed 10th December 2006]†¢Economics Handbook, David Gray and Peter Clarke†¢Pricing strategies http://www.tutor2u.net/bus iness/marketing/pricing_strategy_penetration.asp [accessed 10th December 2006]†¢International Competitiveness (2001) UK Labour GovernmentAppendixItem AAs the firm increases the supply through using the spare capacity, supply curve shifts left from S1 to S2 as a result the market clearing price falls but quantity increases. Shifts in supply curve http://www.auhy69.dsl.pipex.com/images/dd202/b2p.jpg [accessed 10th December 2006]Item BIn this diagram you can see that in an oligopoly market it is unfavourable for the oligopoly firms to change their price, so it becomes static. Price Competition in Oligopoly Market, Foundations of Economics Handbook (2006) David Gray and Peter ClarkeItem CA Movement along the demand curve will increase the quantity demanded but reduce selling price. Demand and Supply www.investopedia.com/university/economics/economics3.asp [accessed 10th December 2006]Item DAs the price is set lower from P1 to P2

How the iPhona Changed Modern Economics Essay Example | Topics and Well Written Essays - 1500 words

How the iPhona Changed Modern Economics - Essay Example According to the company, an estimated 200,000 iPhones were pre ordered the very day that the phone went on sale in the country and another 400,000 were sold on that day. The company was able to attract so many buyers because of the popularity that the phone had gained over the Chinese market because of the sale of its previous model, which had further excited a wider consumer base. Even though the phones are more expensive, they offer better features as well as data services which have attracted.In economic terms, it is clear and evident that this particular phone has appealed a great deal to at least half of the Chinese market because more and more people have bought it at the price at which it was launched. The iPad was also released in China and went on sale at a fast pace as well. However, the crux of the matter remained that the iPhone’s demand exceeded the supply that the company was able to give to the people. This goes to show that there was an extension of demand in the particular commodity at the same or even higher price. Since the iPhone 4 was costlier than the previous version, an extension (and not just an increase) in demand can be noticed here in economic terms which means that there is movement along the demand curve.As per the article, â€Å"As of the second quarter, Apple was the fifth-largest smart phone vendor in China with 7.1% of shipments, according to Beijing research firm Analysys International. Nokia Corp. had the largest share with 26.7%.†Ã‚  

Perspectives on Culture Essay Example | Topics and Well Written Essays - 500 words

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Islamic Finance Essay Example | Topics and Well Written Essays - 1500 words

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Contemporary Issues in Accounting Essay Example | Topics and Well Written Essays - 750 words

Contemporary Issues in Accounting - Essay Example Around the world, governments (typically following the lead of practice) have begun to take notice, putting new disclosure regulations on the book. Despite these new regulations, significant questions remain about whether, and, possibly more importantly, how corporate disclosures about their social, environmental, and economic practices should evolve." (Corporate Disclosure of Social and Environmental Data Mandatory Vs Voluntary. 2004). If a particular organization is operating with an appropriate emphasis on its environmental issues, it means that it is focused on sustainability as well as the well being of the particular society in which the organization exists. Nowadays, the accounting system requires the disclosure of environmental facts in respect of financial accounting reports. The main purpose of preparing the financial accounting report is that to provide useful information about the business to its ultimate users. Such categories of users shall be owners, shareholders, investors, employees, suppliers, creditors and the public as a whole. Moreover, the report so made should be more relevant, it should possess the quality of materiality, accuracy and comparability. Environmental performance and economics measurements relate to a certain extent, as far as the accounting policies and reporting procedures are taken in to consideration. "Environmentally driven innovation can create shareholder value by lowering cost, improving production processes and service delivery, and helping to find new markets. Increased process efficiency is an example of a proven sustainability strategy for decreasing cost and adding revenue, there by improving profitability." (Slater and Gilbert 2004). The users of accounting reports should have a thorough knowledge about the changes that take place within the organization as well as in matter of accounting standard context. The accounting report should disclose the environmental performances, for the purpose of easily identifying and evaluating whether the organization is running as per the requirements of the society. Moreover, this helps to develop the reputation of the organization by comparing various environmental data obtained from the annual accounts of the company. "Investors and users of financial statements need information about the impact of environmental risks and liabilities on the financial position of the company, as well as the company's attitude towards the environment and its environmental performance, to the extent that these factors may have consequences for the financial health and performance of the company. Regulatory authorities have an interest in monitoring the application of environmental regulations by companies and the costs incurred as a result. But companies' voluntary disclosure of environmental data in annual accounts and annual reports is low. Users of annual reports have an interest in ascertaining to what extent environmental protection is an integral part of the company's policies and activities and what costs and benefits are associated." (Accounting: Commission issues Recommendation on environmental issues in companies' annual accounts a

How to improve the integration of a poka yoke solution from the user Literature review

How to improve the integration of a poka yoke solution from the user perspective - Literature review Example Sissonen’s research based on the fact that large-scale production systems usually employ mass customization processes and activities with large configurability, requiring highly sophisticated approach2. They argue that lack of mistake-proofing or low level of mistake-proofing can result in too many or severe quality issues in mass production systems. However, Da Silveira, Borenstein and Fogliatto argued that it should also be noted that mass customization cannot be adopted for all types of products, processes or consumers3. The ability to identify reasons for mass customization is important from managerial perspective in order to reinforce predictability of demand, which will eventually spell the success of the product/business. Kaplan, Schoder and Haenlein built their research on Frank and Piller’s proposition that mass customization from a consumer’s perspective has critical implications for managers and the business because this decision usually depends on two factors: the value customers gain by using a mass customized product relative to their needs, and secondly, the returns of a process design that gives optimum results4. Squire et al.’s point that highlights price, quality and technical attributes as the most probable value-creating criteria that determine the need and demand for mass-customized products and processes is indicative of the need for mistake-proofing. Mistake-proofing therefore adds great value to the effectiveness of mass-customization in terms of profits, quality, and business growth5. Examples of mistake-proofing in mass-customization6: a) Machinery with warning lights to highlight improper positioning or usage of parts; b) A device to count the number of holes drilled in a work piece to indicate correct/incorrect number of holes drilled; c) Double verification of passwords in IT systems; d) Signals to indicate open or improperly closed doors in cars etc. e) Automated checking and saving Microsoft Office docu ments. These examples indicate the application of mistake-proofing in mass-customization from product, process, and consumer perspectives. Evans highlights Chase and Stewart’s point that mistake-proofing in mass-customization for services sector should account for both customers’ and service providers’ activities7. Mistake-proofing methods must be set up for various activities involved in providing a particular service, which is characteristic of service industry. For instance, a banking service might provide various facilities to their customers for the same product, like withdrawal of money from ATM, direction transaction with bank, phone, cheque book etc; each of these multiple service options will require efficient mistake-proofing techniques to prevent errors, frauds and losses. Although the error-free activity is the responsibility of the bank, its liaison with manufacturing units is inevitable and the mistake-proofing techniques provided in some of these services are usually fixed by the manufacturers. For instance, for ATM machines to indicate error/fraud, mistake-proofing tools, such as warning lights/signals, need to be incorporated during its manufacturing process. According to Swaminathan, factors in general that necessitate or support mass customization obviously include large scale production and predictable demand, similar products, similar processes, and cost-reduction8.

English literature Paper. Regarding Childrens Picture books Essay

English literature Paper. Regarding Childrens Picture books - Essay Example The text says â€Å"and another† (pp 9) which convey he is up to some mischief all the time. It also conveys maybe one mistake is pardonable but â€Å"another† becomes a serious mistake. The face of the puppy, very frightened also serves to highlight the devilish act. By contrasting the devilish joy on Max’s face with the innocence of the puppy the author is successful in showing how â€Å"wild† can Max be. He is running vigorously, suspended in midair, his tail is very fluffy and up in the air, all contribute to show he is totally engaged and excited. The next picture shows him angry and his eyes are on the door which shows that he is locked in his bedroom. The text tells us â€Å"without eating anything† (pp 11) . The words â€Å"wild thing† (pp 11) are capitalized which suggest he is labeled as a very naughty boy. He answers back which is again capitalized which show his disobedience. The picture shows that he does not feel any remorse. At the same time it conveys to the children that he is punished for not obeying his mother and being mischievous. Thus while the text or the words carry the narrative forward, the illustrations serve to enhance the situation and make an impact on the reader. Without the illustrations the children will not be able to grasp the importance of how wild can Max be or what he feels when he is punished. â€Å" Text and images work together, a relationship many critics call a marriage or union, to bring a story to new levels. Leonard S. Marcus refers to the relationship as "a dialogue between two worlds: the world of images and the world of words." Illustrations can extend the meaning of a story or alter a book altogether.† (What is a picture book) Further a forest grows in Max’s room and he sails out in his â€Å"private boat† (pp 19). The transition from locking max to his journey to â€Å"where the wild things are† is covered up by the narrative. At the same time the illustrations depict a wild forest