This week our objectives include how to determine pricing strategy to meet organizational goals, ways to implement non barriers to entry based on market structure, ways to increase product differentiation based on market structure, and ways to reduce costs for an organization. We will discuss three categories from the objectives, which includes monopoly, games, and strategies. Each topic includes the topic we feel comfortable with, any topic we struggle with, and how this weekly objectives relate to application in our field.
One group member discusses the monopoly part of the objectives and how she thought it was very interesting. Belgee Chandler found the subject of monopolies to be very interesting. According to the text, a pure monopoly is one where one seller dominates a particular field. They are the sole provider of a product and no close substitutes are available. She found the examples the text used such as utilities (power, water, etc) to be very helpful. Since pure monopolies are rare, had a difficult time understanding what would be considered a monopoly at her work.
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She did, however, remember the instance when she worked for AT&T and they were trying to acquire T-Mobile. It caused a wide spread panic with her customers because they were worried about how that would affect them. Her co-workers feared, too, that it would affect their job security. In the end, the merger was not allowed because it was determined that if the two companies merged, they would dominate 80% of the cellular phone industry. In essence, it would have been a monopoly. This concept of monopolizing an industry was very interesting.
It helped to understand the principles of economics better. By everyone having fair share to present a product to a consumer, it gives everyone the opportunity to profit and consumers a wide variety of merchants. Another group member explains the games and strategies of this week’s objectives; however the oligopoly market structure was most interesting. All market structures have to determine the best pricing strategy to meet organizational goals, and the oligopolistic has two options, which are to price high or price low.
The game theory is the study of how businesses behave in price-strategy situations. In a one-time game, two firms have four combinations of strategies that represent a high and low pricing strategy. learned this week that sometimes firms collide to accomplish a high pricing strategy. However, sometimes the other firm can cheat the agreement of colliding by keeping their prices low while their competitor raises their price. When the firms do collide they are choosing the dominant strategy because both firms are at the game’s Nash equilibrium.
Nash equilibrium is the best result when achieved because it is stable and both players will not gain anything if they change their strategy. In the game theory, regardless what the other player desires to do all the players is interdependent; therefore, the outcome of each participant depends on the choices of all. If the players do decide to follow their own interests, this usually leads to a bad result, called the prisoner’s dilemma.
The oligopoly market operates best when the firms work together, so both parties can get the maximum profit. Merging is a good non price barrier to entry because the two firms are becoming one for a greater monopoly power. Also, this creates larger economies of scale by decreasing the average total cost. The simultaneous consumption and network effects increase the demand for the product in turn reducing the cost. This week felt comfortable with all the objectives, and has a better understanding of the market structures.
Week three’s objective was interesting for each member. Each member learned how to determine pricing strategy to meet organizational goals, how to implement non barriers to entry based on market structure, and ways to increase product differentiation based on a market structure. Each member explains in detail the three categories: monopoly, games, and strategies and how it relates in our field. All of these objectives are very important and affect everyone differently.