Stragies Beyond the Market

8/4/2019 Stragies Beyond the Market

http://slidepdf.com/reader/full/stragies-beyond-the-market 1/21

Strategies Beyond

the Market



Introduction

How can a Company earn Superior Returns?

What is a perfect market?

What do we mean by Market failure?



Market Failure

Market failure is a concept within economic theorywherein the freely functioning markets fail to deliver anefficient or optimal allocation of resources.

The market failure concept was used only as a normativeconcept to define appropriate situations for governmentintervention in markets.

Market failure exists when the competitive outcome of markets is not efficient from the point of view of theeconomy as a whole.



Sources of Superior Returns

Attractive Industry –

1.Buyer power

2.Supplier power

3.Barrier to entry

4.The threat of substitutes

5.Rivaly A firms Unique bundle of resources and capabilities Difficulties in acquiring and transmitting Knowledge within

and across companies.



Government and Social group

interventions The economic rationale for government intervention

Correction for market failure/loss of economic efficiency

Desire for greater degree of equity in the distribution of income and wealth.



Guidelines from Strategies beyond

market Recognize market failures and resulting opportunities for

strategic success.

Predict how governments and social groups will respondto market failures.

Learn how to formulate strategies that build on theseresponses to improve your company’s financial

performance.



Causes of Market Failure

Market Power

Transactions Costs

Externalities Information Imperfections



Market Power

Market power is the ability of a firm to alter the marketprice of a good or service.

Market power is the presence of fixed costs because theylimit the number of products that companies can offer in amarket of a given size.

It has the presence of Production economies, which

might limit the number of competitors .



Abuse Of Monopoly Position

Imperfect competition can lead to a misallocation of resources

Monopoly prices will normally be above those in

competitive markets- loss of consumer surplus

-output is below the competitive equilibrium level

-loss of static (allocative and productive) efficiency Monopolists may waste scarce resources



Transaction Costs

Transaction cost is a cost incurred in making an

economic exchange (the cost of participating in a market).

Kinds Of Transaction Costs

- Search and information costs

- Bargaining costs

- Policing and enforcement costs



Tools to control Market Failure of

Information goods Four Principal tools to prevent the failure of market for

information goods and to protect Government intellectual

property are

1.Patent

2.Copyright

3.Trademark

4. Trade secret



Externalities

Externalities effects arising from the production and or consumption of goods and services for which noappropriate compensation is paid.

Externalities create a divergence between the private andsocial costs of production.

Negative externalities Over production of goods where the social cost>private

cost Over consumption of de-merit goods where social

benefit<private benefit



Information Imperfect

Information relevant to the sale or purchase of products or

services that is privately held by one of the parties to the

transaction.

Adverse Selection.



Types of Market failures

Failures due to Production or Exchange

Primitives

Company Induced Failures

Government Induced Failure



Market Strategies and Strategies

Beyond Markets The Importance of Non Customers

Rivals’ cost, Willingness to Pay and Price

Outcomes, Processes and Intensions



SWOT Analysis

Strengths:

Ability to spot Market Failures

Ability to strategize and

capitalize on Market Failure

Weakness:

Inability to develop a product

that can dominate the market.

Inability to adapt to changes

Opportunities:

Untapped Markets like ruralMarkets.

Markets where there is

Monopoly.

Threats:

Government Regulations

Pressure from Social Groups

Threat from competitors



Measures to control Market

Failures Government should look for Market failures Social Groups also play a vital role in overcoming market

failures.

Economists and technical experts should be appointed bythe government to deal with market failures.

Ensure that there is no monopoly or unfair trade practicesfollowed by Companies

Encouragement should be given to other industries tocome up with close substitutes to avoid monopoly or market failure.



Government and Social group

interventions

Several forms of government interventions are possible tocorrect for perceived market failure

1. Command and control techniques (including regulation)

2. Government subsidy and other forms of financialassistance including research grant and taxallowances/tax exemptions)

3. Taxation (including indirect taxes designed to controlpollution)

4. Policies to increase competition and reduce the immobilityof factors of production

5. Provision and finance of public and merit goods

6. Introduction/expansion of “market based incentives” tochange both consumer and producer behavior.



Recommendations

Spotting Opportunities early.

Exploiting the opportunities.

Predicting government and social response Analyzing the response and adapting to the Change.

Explore Markets where there is a monopoly.



Conclusion

Market Failure

Opportunities arising from Market Failure

Factors to Be considered while formulating strategies. Be ready to change strategy and adapt to changes in the

environment.



Thank You

Documents

Stragies Beyond the Market