Free «Principles of Economics» Essay Sample

Price discrimination strategyPrice discrimination implies charging two different prices for the same commodity in two different and distinct markets. With the two different target market which are believed to be distinct thus having different elasticity of demand I will be able to charge different price for the same products. For the local buyers that are students and local residents I will charge a low price because they have an elastic demand. This means that their quantity demanded with greatly respond to a change in price. On the other hand, for the visitors I will charge a high price on the products they purchase. This is because they have an inelastic demand meaning that any change in price will not affect the amount of quantity demanded by them. As a result of this strategy I will be able to increase my revenues and profits. The strategy is supported by the assumption that there will be no market switching by the visitors (Mankiw, 2008, pp. 89).

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With the absence of government intervention in the market the prices of various commodities is determined by the forces of demand and supply. In that case the market is at equilibrium at point, e, where demand is equal to supply. At point, e, Pe is the equilibrium price of the cable TV and Qe is the amount of quantity demanded of the cable TV. When the government intervene the market with price control policies, in this case, price ceiling, which is the maximum price that can be charged by the sellers on cable TV as shown above by letter P. At that point there is excess demand of (QsQd). The quantity demanded is represented by Qd units whereas quantity supplied is represented by Qs units. This means that less cable TV will be produced by the industry as compared to those required by the consumers. This will create deficiencies in the market. It may eventually result to the demise of the industry due to high cost of production per unit (Hylton, 2003, pp. 76).With the introduction of cheap, new and satisfying type of programming, the resulting effect will be an increase in the number of product being demanded translating to increased supply of the same by the industry. At last the industry will be able to increase its revenues and profits because of reduced cost per unit of the products. The supply curve will shift downwards indicating an increase in quantity supplied for the market to be in equilibrium.

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Long run average cost curvesThe different market systems have different shapes of their long run average cost curves. For instance, the long run average cost curve of a natural monopoly is steeper downwards as compared to that of perfectly competitive market. The reasons behind, is that for a natural monopoly it is in a position of increase its output and price in the long run. The monopoly will ensure that it maximizes its capacity. With increased production the cost per unit will be reduced. This will be lower compared with the MES (minimum efficient scale). For the case of a perfect market as we move downwards the long run average cost curves we have the constant returns of scale. At this point the average cost of production is equivalent to the MES (minimum efficient scale).New model of digital cameraInitially the market is assumed to have inelastic demand for the present buyers as compared to the inelastic demand of the future buyers. Presently and in the future the products are still the same but the price is the factor that has changed. This is discrimination between the present buyers and the future buyers. The reason is that with the initial high price the producer has been able to meet the production cost therefore the low price in the future will just be equated to the average variable costs (Gillespie, 2007).Rationale and implications of new guidelinesThe new guidelines seek to challenge and identify competitively unhealthy mergers as it avoids interference on mergers which are neutral or beneficial competitively. In most cases merger analysis are highly predictive hence it is possible to carryout an assessment about the outcome. It also illustrates the chief analytical methods and the evidence that is relied upon by the agency in order determines whether the merger will reduce competition (Marshall, 2010, pp. 63). It is not meant for how to look at cases but horizontal mergers. They are meant to help the business society together with antitrust practitioners through an increase in transparency of the analytical procedures based on the agencies decisions on enforcement. The guidelines will also help the court with the interpretation and application of the laws concerning antitrust within the context of horizontal mergers (Blinder, 2008, pp. 67).

The guidelines should also be look at with the anticipation that there is no universal method to be employed for its application. This means that it is a process which is based on facts together with the extensive experience of the agencies of utilizing the different analytical tools to the present and unfailing evidence to assess within a short period of time the competitive concerns.The summation theme is that the mergers should not be allowed to enhance, create or establish market power or in any case facilitates its exercise. It will strengthen the market power only if it will be in a position of encouraging more than one firm to increase their prices, lower output, reduce innovation or cause harm to customers because of minimal competitive incentives. The merger can only strengthen the market power only through reduction of competition among the merging parties (Perloff, 2001, pp. 61).The guidelines majorly clearly state the procedure on the analysis of mergers by the Agencies among competing suppliers which may strengthen their power as merchants. This will results into an increase in the prices charged on consumers. It can also be looked in terms that are price unrelated such as low product quality, minimal product variety, reduced innovation and reduced service. The two can coexist together. Mergers are normally assessed based on their shock on consumers.On the other hand, the strengthening of what we call monopsony power that is the power vested on the buyer has got greatly adverse effects as compared to that of the seller. The guidelines are also used to analyze any mergers between buyers that can strengthen their market power.


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