06 Dec Using the attached outline. ?Write a research paper that will be at least 8 and at most 9 double-spaced pages for the main content (not including the cover page and reference
Using the attached outline. Write a research paper that will be at least 8 and at most 9 double-spaced pages for the main content (not including the cover page and reference page). Your choices include: The topic will be Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets. Ensure you describer real world examples of each type of market. Use a minimum of the five references (add more if you need to). The paper must be written in proper APA format.
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Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Sha-Nicca A. White
Liberty University
BUSI 620 – Global Economic Environment (D02)
Prof. Andrew Light
01 December 2022
I. Introduction
A. Definition of Managerial Economics
The application of economic theories and analysis to business choices is known as managerial economics. It offers managers a framework for choosing how to distribute resources in order to achieve desired goals.
B. Definition of Market Types
Competitive, monopolistic, and monopolistically competitive marketplaces are the three primary types. Every market type has unique traits that influence how managers must make decisions in order to succeed.
1. Competitive Markets
Markets that are competitive have numerous buyers and sellers of a given good, and each buyer and seller has only a modest influence on the market price. To draw clients in a competitive market, businesses must compete on pricing.
2. Monopolistic Markets
Monopolistic markets are those in which a product is sold by just one seller. In a market with a monopoly, the company sets the price for the good.
3. Monopolistically Competitive Markets
Monopolistically competitive marketplaces are those where a product is sold by many different sellers, each of whom offers a distinct good. Companies must compete on pricing and product quality in a monopolistically competitive market in order to draw customers.
C. Thesis Statement
To be effective, managerial decisions in each of the three market types must take into consideration its particular qualities. The various facets of each market type will be covered in detail, along with how they influence managerial choice-making. I'll also give illustrations of each kind of market.
II. Competitive Markets
A. Definition
It is a market with several purchasers and vendors of a specific good who have minimal influence over the market price (Mixon, 2020). Companies compete on price to win over customers.
B. Characteristics
To make decisions as a manager in a competitive market, it's critical to comprehend a few characteristics of competitive markets:
1. Businesses in a market with competition are price takers, which means they have no control over the cost of their goods. They must consent to the market price instead.
2. In a market where there is competition, businesses would maximize their earnings by producing as much as possible.
3. In a market that is competitive, businesses are allocatively efficient, which means they produce at a level that optimizes social welfare.
When a good's marginal benefit and marginal cost are identical, allocation efficiency is achieved.
C. Examples
The wheat market is an illustration of a competitive market. Wheat is produced by many farmers, and the market price is only little influenced by each of them. To sell their grain, farmers must engage in price competition. The market for automobiles is another illustration of a competitive market. There are numerous automakers, and each one has a negligible effect on market prices. To sell their cars, manufacturers must compete on price.
III. Monopolistic Markets
A. Definition
A monopolistic market is one in which only one product seller exists. In a monopolistic market, the firm has complete control over the price of the product.
B. Characteristics
There is no competition in a market that is monopolistic. Since consumers may only purchase from one supplier, the company has no incentive to reduce costs or raise quality. This might result in more expensive products and services with lesser quality. Lack of rivalry also prevents the business from being motivated to innovate or spend money on R&D. (Gans, 2022). This may result in a shortage of new goods or services, which would limit the possibility of economic growth. Additionally, the company may utilize its influence to engage in anti-competitive behavior, such as blocking the entry of new competitors or conspiring with other companies to reduce competition (Feichtinger et al., 2022). The economy may suffer as a result since less opportunity for competitiveness and innovation exists. Monopolistic marketplaces can also result in inequality, to sum up. Due to a lack of labor competition, the company may utilize its influence to negotiate lower salaries for its employees. High levels of poverty and economic inequality may result from this. Monopolistic marketplaces are frequently subject to government regulation to guarantee that consumers and society are served.
C. Examples
The market for Microsoft Office is one instance of a monopolistic market. As the sole manufacturer of Microsoft Office, Microsoft has exclusive control over pricing. The diamond market stands out as another monopolistic market illustration. Diamonds are only produced by one corporation, which sets the price.
IV. Monopolistically Competitive Markets
A. Definition
A monopolistically competitive market is one in which there are many sellers of a product, but each seller offers a unique product (Dean et al., 2020). In a monopolistically competitive market, firms must compete on price and product quality to attract customers.
B. Characteristics
To make judgments as a manager in a monopolistically competitive market, it is crucial to comprehend a number of monopolistically competitive market features. In a monopolistically competitive market, corporations can set their own pricing for their products since they are price makers (Baye & Prince., 2022). They will create the amount of stuff that will maximize their earnings since they are profit maximizers. If a company is allocatively efficient, it will create the amount of output that optimizes societal welfare in a monopolistically competitive market (Cowling & Nadeem, 2020). In contrast, if a company is not allocatively efficient, it is not producing as much as would maximize social welfare in a monopolistically competitive market.
C. Examples
The restaurant industry is a prime example of a monopolistically competitive market. There are many restaurants, but each one has a distinctive menu. To draw customers, restaurants must compete on both pricing and product quality. The clothes market is another illustration of a monopolistically competitive sector. Although there are numerous clothing firms, each one has a distinctive product to offer. To draw clients, clothing businesses must compete on pricing and product quality.
V. Conclusion
The application of economic theories and analysis to business choices is known as managerial economics. It offers managers a framework for choosing how to distribute resources in order to achieve desired goals. To be effective, managerial decisions must take into account the particular traits of each type of market. Competitive, monopolistic, and monopolistically competitive marketplaces are the three primary categories. Every market type has unique traits that influence how managers must make decisions in order to succeed. The consequences for managers are that in order to successfully make decisions, they must consider the distinctive characteristics of each market type. Managers must understand that they are price takers in a competitive market and that they must compete on price to get clients. Managers must be aware that they are price makers in monopolistic markets and have total power over product prices. Managers must understand that they set prices in monopolistically competitive markets and that companies must compete on both price and product quality to win customers. To be effective, managerial decisions in each of the three market types must take into consideration its particular qualities.
References
Baye, M. R., & Prince, J. (2022). Managerial Economics and Business Strategy (10th ed.). McGraw-Hill.
Cowling, M., & Nadeem, S. P. (2020). Entrepreneurial firms: With whom do they compete, and where? Review of Industrial Organization, 57(3), 559–577. https://doi.org/10.1007/s11151-020-09782-y
Dean, E., Elardo, J., Berger, S., Wilson, B., & Green, M. (2022). Monopolistic competition. Principles of Economics Scarcity and Social Provisioning 2nd Ed. Principles of Economics Scarcity and Social Provisioning 2nd Ed. Retrieved November 28, 2022, from https://openoregon.pressbooks.pub/socialprovisioning2/chapter/13-1-monopolistic-competition/
Feichtinger, G., Lambertini, L., Leitmann, G., & Wrzaczek, S. (2022). Managing the tragedy of commons and polluting emissions: A unified view. European Journal of Operational Research, 303(1), 487–499. https://doi.org/10.1016/j.ejor.2022.02.034
Gans, J. (2022). AI adoption in a monopoly market. National Bureau of Economic Research. https://doi.org/10.3386/w29995
Mixon, W. I. (2020, January 31). A computational analysis of monopolistic competition – researchgate. Researchgate.net. Retrieved November 28, 2022, from https://www.researchgate.net/publication/338955105_A_Computational_Analysis_of_Monopolistic_Competition
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MICHAEL R. BAYEMICHAEL R. BAYE7e
MANAGERIAL ECONOMICS AND BUSINESS STRATEGY
MICHAEL R. BAYE
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ISBN 978-0-07-337596-0 MHID 0-07-337596-9
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PROVEN. TRUSTED. Managerial Economics and Business Strategy is the best-selling managerial economics textbook on the market today. Michael Baye provides students with tools like intermediate microeconomics, game theory, and industrial organization that are crucial to making sound managerial decisions. The Seventh Edition discusses the latest issues and research shaping managerial economics today.
KEY FEATURES OF THIS NEW EDITION INCLUDE:
UPDATED HEADLINES: Updated and current Headlines begin each chapter with a real-world economic problem. These problems are essentially hand-picked “mini-cases” designed to motivate students to better understand the chapter material.
NEW AND UPDATED INSIDE BUSINESS APPLICATIONS: New Inside Business boxes illustrate real-world applications of theory developed in the chapter; these examples are drawn from both current economic literature and the popular press.
TIME WARNER CASE STUDY: A Case Study in business strategy — Challenges at Time Warner — follows Chapter 14. The case engages students by applying core elements from managerial economics to a rich business environment.
For more information and resources, please visit the text’s Online Learning Center: www.mhhe.com/baye7e
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Managerial Economics and Business Strategy
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Nash Equilibrium • Predatory Pricing • Mergers & Acquisitions •
Demand Elasticity • Vertical Foreclosure • Penetration Pricing •
Marginal Cost • Bottlenecks • First-Mover Advantage • Signaling •
Learning Curve • Marginal Revenue • Repeated Games • Microsoft •
Screening • Network Effects • Antitrust • Cost Complementarities •
Two-Part Pricing • Limit Pricing • Tariffs • Bargaining • Cournot
Oligopoly • American Airlines • Raising Rivals’ Costs • Moral Hazard •
eBay • Price Discrimination • Adverse Selection • Economies of Scope
• Auctions • Bundling • Block Pricing • Stackelberg Oligopoly •
Advertising • Perfect Equilibrium • Coordination • General Motors •
Quotas • Extensive Form Games • Economies of Scale • Netscape •
Hold-up Problem • Patents • Bertrand Oligopoly • Commitment •
Economies of Scale • Tariffs • Antitrust • Transfer Pricing • Collusion
• Piece Rates • Profit-Sharing • Sunk Costs • Takeovers • Trigger
Strategies • Low-Price Guarantees • Sony • Time Warner • Five
Forces Framework • AOL • Globalization • Best-Response Function •
Cannibalization • Product Differentiation • Value of Information
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SEVENTH EDITION
Managerial Economics and Business Strategy
Michael R. Baye Bert Elwert Professor of Business Economics & Public Policy Kelley School of Business Indiana University
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MANAGERIAL ECONOMICS AND BUSINESS STRATEGY
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2010, 2008, 2006, 2003, 2000, 1997, 1994 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
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Library of Congress Cataloging-in-Publication Data
Baye, Michael R., 1958- Managerial economics and business strategy / Michael R. Baye. — 7th ed.
p. cm. Includes index. ISBN-13: 978-0-07-337596-0 (alk.paper) ISBN-10: 0-07-337596-9 (alk. paper) 1. Managerial economics. 2. Strategic planning. I. Title.
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The McGraw-Hill Series Economics ESSENTIALS OF ECONOMICS
Brue, McConnell, and Flynn Essentials of Economics Second Edition
Mandel Economics: The Basics First Edition
Schiller Essentials of Economics Seventh Edition
PRINCIPLES OF ECONOMICS
Colander Economics, Microeconomics, and Macroeconomics Eighth Edition
Frank and Bernanke Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics Fourth Edition
Frank and Bernanke Brief Editions: Principles of Economics, Principles of Microeconomics, Principles of Macroeconomics First Edition
McConnell, Brue, and Flynn Economics, Microeconomics, and Macroeconomics Eighteenth Edition
McConnell, Brue, and Flynn Brief Editions: Microeconomics and Macroeconomics First Edition
Miller Principles of Microeconomics First Edition
Samuelson and Nordhaus Economics, Microeconomics, and Macroeconomics Nineteenth Edition
Schiller The Economy Today, The Micro Economy Today, and The Macro Economy Today Twelfth Edition
Slavin Economics, Microeconomics, and Macroeconomics Ninth Edition
ECONOMICS OF SOCIAL ISSUES
Guell Issues in Economics Today Fifth Edition
Sharp, Register, and Grimes Economics of Social Issues Nineteenth Edition
ECONOMETRICS
Gujarati and Porter Basic Econometrics Fifth Edition
Gujarati and Porter Essentials of Econometrics Fourth Edition
MANAGERIAL ECONOMICS
Baye Managerial Economics and Business Strategy Seventh Edition
Brickley, Smith, and Zimmerman Managerial Economics and Organizational Architecture Fifth Edition
Thomas and Maurice Managerial Economics Tenth Edition
INTERMEDIATE ECONOMICS
Bernheim and Whinston Microeconomics First Edition
Dornbusch, Fischer, and Startz Macroeconomics Tenth Edition
Frank Microeconomics and Behavior Eighth Edition
ADVANCED ECONOMICS
Romer Advanced Macroeconomics Third Edition
MONEY AND BANKING
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URBAN ECONOMICS
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King and King International Economics, Globalization, and Policy: A Reader Fifth Edition
Pugel International Economics Fourteenth Edition
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vi
ABOUT THE AUTHOR
Michael Baye is the Bert Elwert Professor of Business Economics & Public Policy at Indiana University’s Kelley School of Business. He received his B.S. in economics from Texas A&M University in 1980 and earned a Ph.D. in economics from Purdue University in 1983. Prior to joining Indiana University, he taught graduate and under- graduate courses at The Pennsylvania State University, Texas A&M University, and the University of Kentucky. Professor Baye served as the Director of the Bureau of Economics at the Federal Trade Commission from July 2007–December 2008.
Professor Baye has won numerous awards for his outstanding teaching and research and regularly teaches courses in managerial economics and industrial organization at the undergraduate, M.B.A., and Ph.D. levels. Professor Baye has made a variety of contributions to the fields of game theory and industrial organi- zation. His research on mergers, auctions, and contests has been published in such journals as the American Economic Review, the Review of Economic Studies, and the Economic Journal. Professor Baye’s research on pricing strategies in online and other environments where consumers search for price information has been pub- lished in economics journals (such as the American Economic Review, Economet- rica, and the Journal of Political Economy), featured in the popular press (including The Wall Street Journal, Forbes, and The New York Times), and pub- lished in leading marketing journals. His research has been supported by the National Science Foundation, the Fulbright Commission, and other organizations.
Professor Baye has held visiting appointments at Cambridge, Oxford, Erasmus University, Tilburg University, and the New Economic School in Moscow, Russia. He has served on numerous editorial boards in economics as well as marketing, including Economic Theory and the Journal of Public Policy & Marketing. When he is not teaching or engaged in research, Michael enjoys activities ranging from camping to shopping for electronic gadgets.
To Natalie and Mitchell—Thanks for teaching me about the buyer side of the college market.
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vii
PREFACE TO THE SEVENTH EDITION
Thanks to feedback from users around the world, Managerial Economics and Busi- ness Strategy remains the top selling managerial text in the market. I am grateful to all of you for allowing me to provide this updated and improved product. Before highlighting some of the new features of the seventh edition, I would like to stress that the fundamental goal of the book—providing students with the tools from intermediate microeconomics, game theory, and industrial organization that they need to make sound managerial decisions—has not changed.
This book begins by teaching managers the practical utility of basic economic tools such as present value analysis, supply and demand, regression, indifference curves, isoquants, production, costs, and the basic models of perfect competition, monopoly, and monopolistic competition. Adopters and reviewers also praise the book for its real-world examples and because it includes modern topics not con- tained in any other single managerial economics textbook: oligopoly, penetration pricing, multistage and repeated games, foreclosure, contracting, vertical and hori- zontal integration, networks, bargaining, predatory pricing, principal–agent prob- lems, raising rivals’ costs, adverse selection, auctions, screening and signaling, search, limit pricing, and a host of other pricing strategies for firms enjoying mar- ket power. This balanced coverage of traditional and modern microeconomic tools makes it appropriate for a wide variety of managerial economics classrooms. An increasing number of business schools are adopting this book to replace (or use alongside) managerial strategy texts laden with anecdotes but lacking the micro- economic tools needed to identify and implement the business strategies that are optimal in a given situation.
This seventh edition of Managerial Economics and Business Strategy has been thoroughly updated but retains all of the content that made previous editions suc- cessful. The basic structure of the textbook is unchanged.
KEY PEDAGOGICAL FEATURES
The seventh edition retains all of the class-tested features of previous editions that enhance students’ learning experiences and make it easy to teach from this book.
Headlines
As in previous editions, each chapter begins with a Headline that is based on a real- world economic problem—a problem that students should be able to address after completing the chapter. These Headlines are essentially hand-picked “mini-cases” designed to motivate students to learn the material in the chapter. Each Headline is
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viii Preface
answered at the end of the relevant chapter—when the student is better prepared to deal with the complications of real-world problems. Reviewers as well as users of previous editions praise the Headlines not only because they motivate students to learn the material in the chapter, but also because the answers at the end of each chapter help students learn how to use economics to make business decisions.
Learning Objectives
Each chapter includes learning objectives designed to enhance the learning experi- ence.
Demonstration Problems
The best way to learn economics is to practice solving economic problems. So, in addition to the Headlines, each chapter contains many Demonstration Problems sprinkled throughout the text, along with detailed answers. This provides students with a mechanism to verify that they have mastered the material and reduces the cost to students and instructors of having to meet during office hours to discuss answers to problems.
Inside Business Applications
Each chapter contains boxed material (called Inside Business applications) to illus- trate how theories explained in the text relate to a host of different business situa- tions. As in previous editions, I have tried to strike a balance between applications drawn from the current economic literature and the popular press.
Calculus and Noncalculus Alternatives
Users can easily include or exclude calculus-based material without losing content or continuity. That’s because the basic principles and formulae needed to solve a particular class of economic problems (e.g., MR � MC) are first stated without appealing to the notation of calculus. Immediately following each stated principle or formula is a clearly marked Calculus Alternative. Each of these calculus alterna- tives states the preceding principle or formula in calculus notation, and explains the relation between the calculus and noncalculus formula. More detailed calculus der- ivations are relegated to Appendices. Thus, the book is designed for use by instruc- tors who want to integrate calculus into managerial economics and by those who do not require students to use calculus.
Key Terms and Marginal Definitions
Each chapter ends with a list of key terms and concepts. These provide an easy way for instructors to glean material covered in each chapter and for students to check their mastery of terminology. In addition, marginal definitions are provided throughout the text.
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Preface ix
End-of-Chapter Problems
Three types of problems are offered. Highly structured but nonetheless challenging Conceptual and Computational Questions stress fundamentals. These are followed by Problems and Applications, which are far less structured and, like real-world deci- sion environments, may contain more information than is actually needed to solve the problem. Many of these applied problems are based on actual business events.
Additionally, the Time Warner case that follows Chapter 14 includes 14 prob- lems called Memos that have a “real-world feel” and complement the text. All of these case-based problems may be assigned on a chapter-by-chapter basis as spe- cific skills are introduced, or as part of a capstone experience. Solutions to all of the memos are contained online at www.mhhe.com/baye7e.
Answers to selected end-of-chapter Conceptual and Computational Questions are presented at the end of the book; detailed answers to all problems—including Problems and Applications and the Time Warner case Memos, are available to instructors on the password-protected Web site.
Case Study
A case study in business strategy—Challenges at Time Warner—follows Chapter 14 and was prepared by Kyle Anderson, Michael Baye, and Dong Chen especially for this text. It can be used either as a capstone case for the course or to supplement individual chapters. The case allows students to apply core elements from manage- rial economics to a remarkably rich business environment. Instructors can use the case as the basis for an “open-ended” discussion of business strategy, or they can assign specific “memos” (contained at the end of the case) that require students to apply specific tools from managerial economics to the case. Teaching notes, as well as solutions to all of the memos, are provided on the Web site.
Flexibility
Instructors of managerial economics have genuinely heterogeneous textbook needs. Reviewers and users continue to praise the book for its flexibility, and assure us that sections or even entire chapters can be excluded without losing continuity. For instance, an instructor wishing to stress microeconomic fundamentals might choose to cover Chapters 2, 3, 4, 5, 8, 9, 10, 11, and 12. An instructor teaching a more applied course that stresses business strategy might choose to cover Chapters 1, 2, 3, 5, 6, 7, 8, 10, 11, and 13. Each may choose to include additional chapters (for example, Chapter 14 or the Time Warner case) as time permits. More generally, instructors can easily omit topics such as present value analysis, regression, indif- ference curves, isoquants, or reaction functions without losing con
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