Comparing Market Structures

https://docs.google.com/spreadsheet/ccc?key=0Au5cuYUXsI63dHctaTREWUZud0M2Z3FoVzZQTzQ0MlE&hl=en_US#gid=0 - this is the graph, you can access it through your SAIT email

Defining Oligopoly and Game Theory

Game theory is the act of analyzing firm behavior that highlighrs mutual interdependence among firms. It was developed by John Neumann & Oscar Morgenstern. They came up with the idea to analyze strategic behavior. The payoff matrix is the figure of the outcome of if Aman and Omar keeps their aggreement for trade. It also shows the possibilities of what would happen if one of them cheat and the result for the other party. Cartel is where sellers act in unison.

Source: Textbook, Chapter 11 (pages 387-394)

Competing as Starbucks

Starbucks can be considered to be part of a perfect competition market because compared to other companies, they are one of the top successful. With their friendly "partners" (employees), great training, fresh products, variety of merchandise and over 10 different types of coffee beans to purchase, compared to the competition, I would choose Starbucks. Starbucks would realign their business practices mainly to satisfy the average customer. For example, Starbucks has changed the height of their bar and their espresso machines so that customers were seen. This is to provide the partners a chance to connect with their customers. Starbucks also wanted to change recipes of their products to meet quality expectations.

Starbucks had to close down stores because they were unprofitable due to the fact that another nearby Starbucks were taking all their business. Starbucks is planning to close down 5% of U.S. stores. The reason being is that they are trying to boost its stock prices. Starbucks would have lost profits due to store closures. Long run costs to stores would be advertising, and inventory costs.

To compare to Starbucks for me is easy. This is because I am currently working as a shift supervisor. As an employee, I still think that our products are expensive. At least once a day, I get a customer saying that a product is too expensive. But they have to know that we need to cover inventory costs, equipment and labour. I once had a customer tell me that Starbucks is too expensive that they are the reason people are on welfare. I think this is unfair because we are not forcing people to be our customers, we are just known to provide a excellent experience to customers. I think that if Starbucks were to lower prices, demand would increase and supply would decrease, maybe causing a slight shortage.

Sources: http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html

http://www.cbc.ca/news/business/story/2008/07/01/starbucks-closures.html

http://seattletimes.nwsource.com/html/businesstechnology/2008028854_starbucks02.html

Long Run Costs and Economies of Scale

I have looked at Andreas blog, but I did not find a business idea of hers. Sorry about that.

Law of Diminishing Returns

The article that is being expained is about tobacco legislation. It explains reasons as to how tobacco leads to many causes of different types of diseases. The reason that the debate for tobacco legislation is lessend is that remaining smokers are usually ones that value smoking and need higher disincentive before they quit smoking and also that those smokers that were easily persuaded to stop smoking have already quit.
I think the point of diminshing returns is that too much information on health problems of tobacco consumption is spread and consumers are inelastic to the information. Currently, cigarette consumption is smuggled between 6-8.5 percent in the world· To lessen diminishing returns on tobacco, increasing regulations & taxes would need to come into effect. Currently, the supply and demand are both equal for tobacco. Sin taxes are taxes that are applied towards proscribed goods and services. Examples include tobacco, alchohol, soft drinks and candy. In terms of sin taxes, if the sin taxes increased on tobacco, it still would not affect the consumption of tobacco. Instead, it increases the consumption of tobacco.

Oil and gas industry in Alberta

Oil and Gas Industry in Alberta

Currently in Alberta, investments in oilsands are increasing. Over the last decade, over $100 billion dollars have been invested in oilsands. The current average investment is $10 billion a year. GDP growth is happening in Alberta but gas is currently a negative factor. In 2008, Alberta had collected gas royalties of $8 billion. This year, we have only collected $1 billion. This results proves that demand for gas has declined over the last few years. The demand of investing in oilsands have definetly improved.

The demand for gas had affected the production in Alberta. Not only is it a problem for the industry, but it is also a problem for Alberta's government. Alberta's government is approving of the Northern Gateway pipeline project but B.C.'s premier is agianst the project. This may be due to the fact that British Columbia is new to to energy production.

Source: http://www.edmontonjournal.com/business/Bullish+Alberta+future/5876331/story.html

Elasticity and Revenue

Impact of Elasticity of Demand on Price in the Hearing Aid Market

Source : http://www.audiologyonline.com/articles/article_detail.asp?article_id=1757

Below is a an example of the relationship between price elasticity and total revenue. The graph is from the source above. The relationship between the two is the for revenue to increase, price has to increase. Price is elastic to revenue because when price increases, total revenue will drop because demand is down.

Below is a chart from the article of how demand can be both elastic & inelastic to pricing.



This article is based on the impact of elasticity in the hearing aid industry. The elasticity of a products demand has to do with their substution products. This is the leading determinant. As stated in the article, "A market having a large number of substitutes—such as over-the-counter pain and fever medications—generally lends to an increase in responsiveness by consumers (i.e., elasticity) as price changes." This just means that perhaps a customer is looking for birth control, and they usually get "Yasmin." for about $15. The next time that they go into the pharmacy, this birth control doubles the price and is now $30. The customer would likely ask the pharmasist for other brands, lets say "Plan B" which is $15 dollars. The customer might switch brands and try "Plan B" because its now cheaper. So now the demand for "Yasmin" has decreased, which makes the elasticity of the price to come into affect immediatetly. Now, the price of "Yasmin" would decrease, hopefully making the total revenue increase due to decrease of price.