Price Makers And Price Takers

Essay specific features

 

Issue:

Business

 

Written by:

Robert B

 

Date added:

September 13, 2013

 

Level:

 

Grade:

B

 

No of pages / words:

4 / 963

 

Was viewed:

5035 times

 

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Essay content:

exploiting the consumer by charging monopoly price, failure to control production costs and other inefficiencies including lack of innovation) Always the threat of new entry from new suppliers or new products – this affects the current behaviour of existing firms (may force them to price more competitively – less scope for monopoly pricing) There are barriers to contestability in most markets – but the higher the barriers, the greater the pricing power in the hands of the incumbent firms because the risks of “hit and run entry” from new rivals is lower Price and Cross-price Elasticity of Demand Elasticity of demand remains a fundamental factor affecting a firm’s pricing power When demand is price inelastic, the business can raise price without losing a disproportionate level of demand / sales (see left hand diagram on next page) When demand is price elastic, the potential to raise price and extract consumer surplus, turning it into higher producer surplus / profit is much reduced – see the right hand diagram on the next page Cross price elasticity of demand is linked to this – i...
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exploiting the consumer by charging monopoly price, failure to control production costs and other inefficiencies including lack of innovation) Always the threat of new entry from new suppliers or new products – this affects the current behaviour of existing firms (may force them to price more competitively – less scope for monopoly pricing) There are barriers to contestability in most markets – but the higher the barriers, the greater the pricing power in the hands of the incumbent firms because the risks of “hit and run entry” from new rivals is lower Price and Cross-price Elasticity of Demand Elasticity of demand remains a fundamental factor affecting a firm’s pricing power When demand is price inelastic, the business can raise price without losing a disproportionate level of demand / sales (see left hand diagram on next page) When demand is price elastic, the potential to raise price and extract consumer surplus, turning it into higher producer surplus / profit is much reduced – see the right hand diagram on the next page Cross price elasticity of demand is linked to this – i...
displayed next 300 characters

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