Market Changes and Strategies in Managerial Economics
Explore market changes, equilibrium shifts, and strategies in Managerial Economics with insights on market structure, demand-supply dynamics, and industry predictions. Discover the impact of external and internal factors on firm strategies and industry landscapes.
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Presentation Transcript
Managerial Economics Fall 2017 - Mike Shor Lecture 6
Last time Synergy! Leverage! Transformative Change! Err economies of scale and scope 2
Outline Understanding market changes Market structure (and the inevitable bad news) Strategy (or delaying the inevitable) 3
Market Changes Market Demand Supply Magic 4
Market Equilibrium Quantity Supplied = Quantity Demanded 5
Market Equilibrium Shifts in supply or demand change equilibrium prices and quantities Can predict industry changes Can explain industry changes 6
Cauliflower bubble? In winter of 2016, cauliflower prices spiked to as much as $8 per head The amount of cauliflower sold remained largely unchanged
All models are wrong But some are useful George Box 8
Market Structure Competitive Firm Monopoly Low barriers to entry Many close substitutes Price taker Similar cost structures High barriers to entry No substitutes Price setter Positive profit possible for a very short term Positive profit possible for longer (but not long) term
Strategy Reduce costs Differentiate Products Reduce Competitive Intensity 11
We pride ourselves on our enduring pursuit and adoption of industry best practices A very proud firm Meh. Me 12
Two Sides of Strategy Industry External Industrial Organization (IO) view focus on characteristics of the industry Firm Resource based view (RBV) focus on non-easily copied assets of your firm 13
Industry View Porter s Five Forces (plus one) High barriers to entry Low buyer power Low supplier power Low threat from substitutes Low levels of rivalry High levels of complementarity 14
Resource View The industry view can t explain why some competitors are more profitable than others. Firms profit from resources that are valuable and rare. Firms profit in the longer term from resources that are difficult to substitute or imitate. 15
Summary Can predict and explain market changes through shifts in supply and demand Industry structure can impact short-term profitability, but in the long term, profits erode Strategy is about maintaining and improving profitability 16
