Reference no: EM132346589

Assignment -

Part A - PURPOSE: The purpose of this assignment is to enable the students to enhance their knowledge on various form of market structures and learn how to make decisions so as to remain competitive in the market place.

REQUIREMENT -

QUESTION 1 - "Pure competition" is normally considered as "the best" market structure and used as a standard comparison against other market structures. On the other hand, "Monopoly" brings to mind images of excessive profits, great wealth, and indiscriminate power. Monopolistic competition, as the name implies have features of both pure competition and monopoly.

Elabourate the above statements with relevant examples.

QUESTION 2 - Please read the following article and answer the questions that follow.

Power Gen Market Structure

Among the principal commercial features of the reorganised industry was the introduction of competition in two of these areas - generation and supply. This competition in electricity generation changed the nature and structure of PowerGen's activities by putting pressure upon market share and the prices it could obtain in the market for its product.

Upon privatisation, there were 10 generating companies bidding to sell the output from their power stations into the electricity Pool - the mechanism through which electricity is traded on a daily basis. Today, this has risen to around 20 companies. As a result PowerGen's market share fell from 28% in 1990/1 to less than 22% in 1996/7. This will reduce further as new entrant capacity continues to grow and as a result of PowerGen's divestment of two of its power stations (which it was required to do this by the industry's regulator in order to speed up the competitive process).

In the area of electricity supply, the sale of electricity and services (including billing and metering) to end consumers is in the final stages of transition to full competition. There are around 30 licensed suppliers (including a number of new independent energy companies) competing for customers in the liberalised part of the market, which currently covers electricity users with a demand of over 100 kW (small industrial and commercial customers and above). In 1998, this choice will be extended to the entire electricity market, including 22 million domestic customers. Since privatisation, PowerGen has successfully competed to maintain its position as the largest supplier to customers in this 'direct sales' market.

Competitive developments have resulted, as intended, in significant reductions in electricity prices. These reductions are over 20% for the Regional Electricity Companies for onwards supply to their own customers and over a quarter for the industrial and commercial customers PowerGen supplies directly.

a. Determine the market structure these firms are in. Support your answer.

b. How would you determine the optimal quantity and price under this market structure?

c. In reality, price determination is more complicated than the one discussed above. Why?

d. If you were the CEO of PowerGen, what would be your overall strategy or strategies to sustain your business? (Hint: How would you maximise shareholder wealth under this market structure and avoid price wars?)

Part B - PURPOSE: The purpose of this assignment is to enable the students to enhance their knowledge on various form of market structures and learn how to make business decisions, particularly pricing decision, so as to remain competitive in the market place.

REQUIREMENT -

QUESTION 1 - Facing the following coordination problem in trying to decide whether to conduct heavy or light combative advertising against the other firm. What should each firm do?

QUESTION 2 - a. Many university bookstores offer price discounts to professors that are generally not available to students. What conditions make this sort of price discrimination feasible and profitable for the bookstore?

b. Similarly, students are often given discounts to attend cultural and athletic events, whereas professors do not receive these discounts. What conditions make this sort of price discrimination possible and desirable?

QUESTION 3 - In the face of stable (or declining) enrollments and increasing costs, many colleges and universities, both public and private, have found themselves in progressively tighter financial dilemmas. This has led to a basic reexamination of the pricing schemes used by institutions of higher learning. One proposal advocated by the Committee for Economic Development (CED) and others has been for the use of more nearly full-cost pricing of higher education, combined with the government provision of sufficient loan funds to students who would not otherwise have access to reasonable loan terms in private markets. Advocates of such proposals argue that the private rate of return to student investors is sufficiently high to stimulate socially optimal levels of demand for education, even with the higher tuition rates. Others have argued against the existence of significant external benefits to undergraduate education to warrant the current high levels of public support.

As with current university pricing schemes, proponents of full-cost pricing generally argue for a standard fee (albeit higher than at present) for all students. Standard-fee proposals ignore relative cost and demand differences among activities in the university.

a. Discuss several possible rationales for charging different prices for different courses of study.

b. What are the income-distribution effects of a pricing scheme that charges the same fee to all students?

c. If universities adopted a system of full-cost (or marginal cost) pricing for various courses, what would you expect the impact on the efficiency of resource allocations within the university to be?

d. Would you complain less about large lecture sections taught by graduate students if these were priced significantly lower than small seminars taught by outstanding scholars?

e. What problems could you see arising from a university that adopted such a pricing scheme?