Impacts of supply and demand shifts

Transcription

1 Impacts of supply and demand shfts

2 1. Impacts of Supply shft S S S S Same sze of shft D D Elastc Demand Inelastc demand

3 2. Impacts of Demand shft D D S D D S Same sze of shft D Elastc Supply Inelastc demand

4 3. Impacts of Supply and Demand shfts Envronmental regulaton on pork producers D S S ep D D eb S ep eb ep ork Market artal equlbrum: ep ep General equlbrum: ep ep n pork market, eb eb n beef market Source: Norwood and Lusk, Ch 3. Beef Market

5 Supply n a compettve market

6 Assumptons and mplcatons Assumptons - Many buyers and sellers. - roduct s homogeneous dentcal. - erfect nformaton s provded - No transacton costs. -Free entry and ext. Implcatons Frms supplers are prce takers C FC a mc a

7 Representatve frm s decson $ a AC MC AC AVC a = MR roft = - AC * * operatng loss / proft determnng the short-run supply

8 Imperfect competton

9 1. Addressng the ssues -Sngle suppler & numerous consumers - A few supplers & numerous consumers - Numerous supplers & sngle buyer - Numerous supplers & a few buyers - Sngle suppler & sngle buyer - A few supplers & A few buyers Market? The extent of competton s a key pont Sellers Competton among sellers Competton Competton among buyers Buyers The competton generally depends on the number of sellers or buyers

10 1. Addressng the ssues - Competton among players and channels Farmers C Farmers O M Farmers E Farmers T I Farmers T I Farmers O N Farmers Farmers f1 f2 fa assemblers assemblers C O M fc E T I T I O N cooperatves Food company Food company Wholesalers Mddle men Wholesalers Retalers Bg Marts Retalers Retalers Super chans r1 r2 C O N S U M E R S Competton among channels exst. f1 >? < f2 / r1 >? < r2 Bg Marts There also exst competton among players at a same stage of marketng channel. fa >? < fc

11 1. Addressng the ssues Defnton of marketng an ntegrated process through whch companes player create value for customers and functon buld strong customer relatonshps tool n order to capture value from customers n return. Several ways of capturng the value - Advertsng - New product - Cost Reducng - New technology Tools that enable the players to wn at the competton

12 2. Monopoly Man reason that causes monopoly s barrers to entry - Exclusve rght to use a key resource. - Exclusve rght to produce some good - Costs of producton make a sngle producer more effcent than a large number of producers Natural monopoly ACaverage cost

13 2. Monopoly Demand Curve that s faced by monopolst Whole market demand s the one that monopolst faces D However, n a compettve market, an ndvdual suppler faces a horzontal demand curve S * D

14 2. Monopoly roft Maxmzaton Whole market demand s the one that monopolst faces C FC MR = MC However, n a compettve market, an ndvdual suppler faces a horzontal demand curve C FC = MC MC AC MR D

15 2. Monopoly Margnal revenue and margnal cost = 10-1/2 TR : = 20-2* MR= 20-4 Cost C = 2+* + 10 MC = 2+2 Total rofts = 20*3+2*3*3 2*3+3*3 +10 = E q,p = - E q,p = - 16 E q,p = E q,p = - 1 E q,p = E q,p = E q,p = 0 Margnal Revenue E 20 q,p = E q,p = - 16 E q,p = E q,p = - 1 E q,p = E q,p = E q,p = 0 MC MR

16 Department of Food and Resource Economcs 2. Monopoly roft Maxmzaton Foc: MR MC rce-cost margnlerner-ndex 0 L 1 : f L > 0 exstence of market power At the monopoly prce, Eq,p -1 FC C 0 0 ] [ C FC C p E q mc L, 1 mc

17 2. Monopoly rce dscrmnaton : chargng dfferent customers dfferent prces <Examples of rce Dscrmnaton> Move tckets Arlne prces Dscount coupons uantty dscounts 1. frst degree prce dscrmnaton: prce vares by customer's wllngness 2. second degree prce dscrmnaton: prce vares by quantty sold. Larger quanttes are avalable at a lower unt prce. 3. Thrd degree prce dscrmnaton: prce vares by attrbutes accordng to market segments

18 2. Monopoly frst degree prce dscrmnaton: Consumer surplus under m m MC addtonal profts of monopolst under perfect prce dscrmnaton D Varable profts of monopolst under m m MR c

19 2. Monopoly Second degree prce dscrmnaton: 1 < + m 2 3 AC MC D m MR

20 Department of Food and Resource Economcs 2. Monopoly Thrd degree prce dscrmnaton Foc: C b b a a 0 ] [ 0 ] [ b b b b b a a a a a C C MR a MC b a MR b MC

21 2. Monopoly Thrd degree prce dscrmnaton Market segmentaton The term s used when consumers wth dentcal product and/or servce needs are dvded up nto groups so they can be charged dfferent prces. Market segment meets all of the followng crtera: - t s dstnct from other segments dfferent segments have dfferent needs, - t s homogeneous wthn the segment exhbts common needs; - t responds smlarly to a market stmulus, - t can be reached by a market nterventon. source: Wkpeda

22 2. Monopoly Thrd degree rce dscrmnaton m1 MC m2 Da MR1 D1 MR2 D2 MRa Market 1 Market 2 Aggregate demand In a market where demand s more elastc, charge a lower prce

23 3. Monopolstc Competton Monopolstc competton - Many frms sell the products that are not dentcal but smlar products are sold by competng frms. roduct dfferentaton: Indvdual frm faces a downward-slopng demand curve, - Free Entry or Ext: Frms can enter or ext the market. Frms enter the market untl economc profts are zero.

24 3. Monopolstc Competton Monopoly v.s. Monopolstc competton Market power L = -mc/ ercepton of the demand Monopoly Lm > 0 L c> 0 Market demand = perceved demand Entry and Ext No addtonal entry Free Monopolstc competton erceved demand = some porton of the whole market demand downward sloppng Exstence of Other brand No Many demand s more elastc than monopoly Lm > Lc

25 3. Monopolstc Competton Short run frm gets the profts MC AC roft encourage new frms to enter the market reduce the demand of exstng frms demand curves of exstng frms shft to the left D: faced by ndvdual frm MR Optmal quantty of ncumbent

26 3. Monopolstc Competton long run frm gets no profts MC AC roft new frms wll enter untl the profts of exstng frms become zero D: faced by ndvdual frm D MR MR Optmal quantty of ncumbent

27 3. Monopolstc Competton long run frm gets no profts MC Excess rofts exst * > MC * AC Over capacty * < c c: quantty produced at effcent scale MC AC * c MR MR D c c = MR

28 3. Monopolstc Competton Socal welfare of monopolstc competton deadweght loss of monopoly prcng n monopolstc competton exsts because of the markup of prce over margnal cost. MC AC * * c MR MR D

29 3. Monopolstc Competton Ways to dfferentate 1. Advertse In a monopolstc competton, each frm has an ncentve to advertse Effects of advertsement Increase the competton by offerng many knds of brands or prces Gve a sgnal to the consumers that the frm provdes a hgher qualty of product Brand name n the context of sgnalng offers consumers the nformaton about the qualty gves an ncentve frms to mantan hgh qualty

30 3. Monopolstc Competton Ways to dfferentate 1. Advertse How much advertsement s optmal? Margnal revenue from advertsng = Margnal cost for advertsng advertsng-to-sales rato = the rato of the advertsng elastcty of demand to the own-prce elastcty of demand. A R E E, A, : Stener-Dorfman condton At larger advertsng elastcty, greater advertsng-to-sales rato

31 Department of Food and Resource Economcs 3. Monopolstc Competton A A C A,, 0 C 1 0 A C A A mc p E q mc, 1 1 mc A A E mc q,a 1 A E E R A A,, foc: Under perfect competton, p-mc =0 no ncentve to advertse

32 3. Monopolstc Competton