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Arcor: Global Strategy and Local Turbulence

Pages:3

Summary

The paper begins with an overview of the confectionery industry and its substantial competitiveness among other industries in the market and states that Western Europe and North America contributed to two-thirds of its sales. Consumers of this industry comprised mostly of teens and adults, who bought chocolates and candy products in very high quantities. Among chocolate and candy, statistics show that 86 percent of overall consumption is due to chocolate, whereas 17 percent is due to candy, which shows significant profit to be belonging to chocolates. According to statistical details obtained, the leading confectionary producers and exporters were renowned chocolate companies like Nestle, Kraft, Hershey, and in this list, Arcor ranked 13th. Amongst the confectionary market, companies have varying categories of chocolate and candy based on their quality, shelf-life and taste (in turn depending on the way cocoa beans were picked and mixed.). The production process was complex, and due to transportation constraints, firms chose to be located near the suppliers for efficiency of time and capital and convenience of employees. Channels for distributing these confectionary goods were mostly supermarkets and self-supporting retailers. But distribution could be a frenzied task, as competition existed therein and creating awareness regarding the product’s reimbursement was necessary. Marketing was mainly via television advertisements. The article then pointed out Arcor and its origin and its journey of success under the sovereignty of Luis Pagani and the 300 percent rise in sales was proof of his efforts. The company’s goal was affordability in terms of prices, popular products in variety, and uncompromised quality of confectionary, and the company strived for these and achieved their desired goals to a huge extent. This brought Arcor corporation, the market, popularity and success it deserved and it spread as far as Brazil and Latin America and moving further overseas. Arcor was smart and diligent enough to develop supply chains of its own and preserved effective production facilities by spending adequate capital on improved technology for production. However, for Argentina, 2003 was the year of disaster. It suffered devaluation of currency, esteemed corporations shutting down and a massive financial crisis. In these times, the Arcor Group, which was one of the more fortunate enterprises to remain financially stable, underwent a change of plans. Arcor planned to put into operation a novel international strategy that would globalize the corporation with respect to distribution networks and facilitation in products. But for Arcor’s produce to spread far and wide across the world, it was primarily necessary for the corporation to have a firm ground at its country of origin, Argentina. Arcor being a stable corporation during the times, contributed in eradicating the adverse effects by increasing worker wages and giving out food necessities. They attempted to build symbiotic relationship with government as an attempt to develop transnational strategy which will act as a tradeoff. They reduced prices of their most popular products by altering the ratios of ingredients, in an attempt to keep sales continued and worked to bring in more revenue from exports by cost effective process of production. Arcor’s plans for globalization included expansion upto countries such as Latin America, North America, Europe, and Asia.

This article is an amalgamation of quite important lessons with respect to business because with its help, I could learn crisis management which is essential in business because there are ups and downs all the time, sometimes within the firm, and sometimes in the world outside too and for businesses to flourish, employees and enterprise owners need to be prepared to face anything. We also get the lesson that the key to important decision making in the face of uncertain times is dependent on the analysis of pros and cons and a long term thought process of the consequences of the decisions. Moreover, the article provides an insight into globalization practices and how to formulate effective strategies to accomplish those for the success of the enterprise.

Why Debt Relief Should Be The Answer To This Coronavirus Crash

Pages:10

Case Study Questions

Pandemics do not just affect health, they also rip individual economies aspect too. For many people  affected  by  the  coronavirus,  including  those  who  do  not  fall  sick,  economic  survival will be a primary concern. When businesses closeand workers no longer get paid, the bills for unpaid  rents,  mortgages  and  consumer  loans  quickly  accumulate.  Cities  have  already  shut down of their transport services, shops, cafes and cinemas. Mass lay-offs are on the horizon. Unemployment insurance willcover some, at least for a time. But self-employed and temporary workers, and households that live pay-cheque to pay-cheque, do not have such buffers.The 2008 crisis should have been a reminder that debt is not a substitute for income. Likewise, ensuring households can afford the basics of everyday life by broadening access to loans and credit cards is no replacement for effective social policy. But instead of heeding these lessons, governments focused on fixing the financial sector, bailing out the banks to ensure they would lend again.As  a  result,  we  are  now  watching  two  overlapping  crises  unfold:  the  coronavirus  pandemic, and the economic threat it poses to our debt-fuelled economy.

 

We urgently need debt relief –especially  for  households  at  the lower  end  of  the  income  and  wealth  spectrum.  Most interventions  that  governments  have  taken  so  far  have  targetedfinancial  markets   and businesses. Unless governments also implement measures aimed at indebted households and renters, such measures are unlikely to prevent a meltdown driven by rapidly falling demand for goods and services. The  economists  Gabriel  Zucman  and  Emmanuel  Saez  have  called  for  asocial  insurance schemeto  tackle  the  economic  shock  wrought  by  coronavirus.  This  would  broaden  the government’s role, making it not just  a  lender  but  a  buyer  of  last  resort.  The  scheme  would compensate for the demand that has evaporated from the economy. With the airline industry, for  example,  if  demand  for  flights  drops  by  80%,  the  government  would  buy  80%  of  plane tickets.  Small  and  medium-size  businesses,  which  are  the  least  insulated  against  economic shocks,  are  most  likely  to  benefit  from  this  intervention.  Still,  on  its  own,  this  would  not alleviate the stress of many deeply indebted households.

 

To  be  sure,  it  is  not  easy  to  tailordebt  relief  to  only  truly  distressed  households.  There  will always be free riders who will take advantage of debt relief packages without needing to do so. But this should not prevent governments from intervening now. There is no better example of an  exogenous  shock  than  coronavirus.  The  overriding  concern  today  should  not  be  moral hazards, but massive default rates that will leave millions of people destitute.To treat the economic fallout of coronavirus, governments should directly assume the debt of high-risk households. It is often said that the public health of the majority is determined by the most vulnerable in society. The same logic applies to a healthy political and economic system: its stability depends on how it treats its weakest members. Hedging our bets on an economic system that has neglected these truths and instead prioritised wealth creation at the top has put us all at risk. There is still a small window to rectify these past wrongs, by urgently granting debt relief to the households worst affected by coronavirus.

Source: Adapted and modified from The Guardian, 18 March 2020, Why debt relief should be the answer to this coronavirus crash, viewed on 26 March 2020, <https://www.theguardian.com/commentisfree/2020/mar/18/debt-relief-coronavirus-crash>.

Question 1

Evidence the group of life-cycle stages being affected most during the Coronavirus crisis?(30 marks)

Question 2

Discuss the financial concern encounter by household during the Coronavirus crisis (note: To answer this question, you need to ask at least FIVE (5) persons regarding the types of financial concern). (30 marks)

Question 3

Diagnose the TWO (2) Malaysian social securities’ being assign by government to ease the financial burden for household? Discuss the mechanism functions on how to help the affected household.  (40 marks)

Case Study Answers

Economy during Coronavirus

Question 1

Evidence the group of life-cycle stages being affected most during the Coronavirus crisis?(30 marks)

 

The economic business cycle is an indicator of the tide the economy usually follows through time. It consists of six major potions namely expansion, boom, recession, depression, trough and recovery in cyclical order and the company business cycle, hence, derives stages from the macro business cycle namely launch, growth, shakeout, maturity, and decline. The coronavirus has become a global crisis in a very short amount of time, and where many economists had predicted a global recession in 2020, they now foresee a world depression because of the severity brought forward by the novel virus and what its solution entails for now. The ripple effect of the virus is extremely important to be studied and analyzed to understand the new situation that the world might face and for that product life-cycles are essential to be looked at. Once the problem has been targeted, it might be easier to deal with it with a focused solution.

It must be understood that in an economic system followed today, one person’s spending is another person’s income. Added to this phenomenon is the undeniable reality of the strongly interconnected world we live in today that entails that if some mega disruption is caused in one part of the world, other countries are bound to feel the impact. The financial indicators used to explain the position of the life cycle commonly include cash flow, sales and profit. Taking a closer look at these will enable analysts to predict which one is being the most negatively impacted by the virus.

Sales mean the sale revenue generated by the exchange of good and services, and because of the virus, buyers are not encouraged to purchase because they are bound to stay at homes and follow social distancing. Profit entails the surplus amount earned on the product by subtracting the total costs from the total selling price, and since the sales have gone down by a large margin, profits have fallen. The most hurt sector appears to be the cash flow as it forms the basis to allow the impact on sales and profits. It is important to remember that the economy is the most stable when it is the most liquid, in other words, when the money flow is continuous, and there are no pauses. However, the epidemic is of such nature that has become a significant barrier in the flow of cash. The global demand has plummeted drastically as a result of almost one-third of the entire world being in lockdown. This can be evidenced by the fall in the oil prices as a result of a fall in demand. Here although this might benefit the oil importers, the oil exporter will lose out.

The hindrance in the cash flow has resulted in negative cash flow where the intake of money is lesser than its outflow. These can be felt by the governing bodies, especially as despite the cut down in spending by the people; the government has to support its people by giving out unemployment benefits, subsidies and easy loans.

Conclusively, the famous statement that “cash is king” is found to be evident in this scenario where the difficulty in cash flows are leading the world into an economic turmoil where many economists predict that it might be worse than the 2008-09 crisis. After analyzing this, decision-makers must introduce reforms and changes to fix the system to minimize the negative impact on the people.

 

 

 

 

Question 2

Discuss the financial concern encounter by the household during the Coronavirus crisis (note: To answer this question, you need to ask at least FIVE (5) persons regarding the types of financial concern). (30 marks)

 

The economic impact of the coronavirus seems unparalleled as many economists are predicting an economic depression to come. Many households are worried how the effect will affect them, but the most stressed are the daily wagers, whose income is dependent upon the very places that are being shut down and due to the lockdown, they are unable to carry out their jobs.

Daily wagers include people who do not have a fixed income but whose wage is dependent on how many orders they receive for their individual assistance, such as plumbers, electricians and labourers who are not linked with any formal sector firm. Lockdowns have been imposed in many countries to reduce the spread of the virus, and resultantly, these people are getting no orders and hence, in essence, are unemployed. Unemployment is the most feared outcome many households might face because of this pandemic. In such cases, many governments have come up with unemployment benefits, such as in Pakistan the Prime Minister announced that 200 Billion Pakistani Rupees would be distributed among daily wagers during this trying period.

Another problem the households are facing includes the payments of loans and rents during this pandemic. Many wagers have received payment cuts due to the pause in production cycles. Hence paying bills, repayment of loans, instalments and paying rent can become a great source of stress for many households.

Moreover, another one of the primary concern for many households appears to be coping up with raised prices of necessary goods in their local markets coupled with the shortages of some products as a result of supply chain disruptions and panic buying.

Furthermore, those households that have a single breadwinner feel severely burdened during this pandemic. Especially the ones who are daily wagers and small business owners who are taking a severe burn from the crisis. The UN reports that 220 Billion Dollar loss might be faced in developing countries.

Additionally, the households that derive their incomes from those industries that are unable to adapt to the most suitable pattern in the crisis, in other words, are unable to convert their business and industry to a digital platform, such as spas, event, tourism, are facing a severe blow as well. Many businesses like the education sector and some medical advisory bodies have digitalized their structures and are rather capitalizing from this epidemic while the business that is unable to do so either because of their nature, or by the lack or skills, resources or structures, are suffering. This domino effect reaches the households of these businesses, and hence they feel the burden of the economic hardships under the covid-19 emergency.

 

 

Question 3

Diagnose the TWO (2) Malaysian social securities’ being assigned by the government to ease the financial burden for the household? Discuss the mechanism functions on how to help the affected house. (40 marks)

 

The Malaysian government has taken plausible action to ease the economic hardships felt by its people. Many social security policies have been made in an attempt to minimize the financial fallout of the coronavirus. According to the Malaysian Inland Revenue Board some leniencies in the taxation department include the announcements that “No penalty will be imposed on late payment of taxes provided the payment is made by 30 April 2020”, “there is an extension of time—until 30 April 2020—to submit Form CP204B, Submission of Notification of Change in Accounting Period, which is due in the period from 18 March 2020 to 29 April 2020”, and “An extension of time until 30 April 2020 is allowed for submitting documents for tax audit or investigation, otherwise due within the period of 18 March 2020 to 29 April 2020”. Further, the interim government of Mahathir Mohamad also came up with economic aid, specially dedicated to the country’s tourism industry. About 4.8 Billion Dollars have been dedicated to supporting the tourism industry on top of the fringe benefits included in the package for the industry. These two policies targeted towards taxation and tourism will ease out the economic strife of many households.

 

The ease in taxation is an indication of the fact that the Malaysian government understands that health comes first and is the primary concern. Hence, the delay in tax payments granted by the government to its people will not only increase people’s trust in the government but will also encourage them to stay at homes and put their heaths as a priority as the date extension has bought them time. The Malaysian households have gotten hope that their government is with them during these trying times and hence has reduced the pressure of filing out tax returns in the middle of an epidemic.

The second policy that is solely targeted towards the tourism industry is an important one is stabilizing the households as tourism is one of the major industries of the country as evidenced by the fact that it forms about 13.3% of the country’s GDP (2018 Report). A large portion of the Malaysians are involved in this business, and many low-income families too are linked with the tourism industry. Hence, providing reliefs to the industry will target the people, low-income households, who are expected to be the most hurt during the economic struggle.

Hence, it can be observed that the Malaysian government is dedicated to standing together with its people in these difficult times by proving them with social relief policies in places where they need it the most. The taxation department and the tourism industry concerns many and covering these two entails that people related to these aspects will find some relief and find peace in their household to an extent.

 

 

American and Chinese economies

Pages:11

GEPPS Research Project

American and Chinese economies

In America and China, many global, ethical, political, physical, and societal indicators highlight how both nations operate. Both nations are not allies, mainly because there is no overriding security interest. There are also no values regarding political aspects because of the concepts about this context. Beijing looks forward to a multipolar post-American world while Washington is trying to implement power wanes and preserve its liberal order. The scope of both nations is different in terms of ethics, legal aspects, and societal context (Dittmer, L., & Liu, G. 2006). The steady market reforms of China have shown that state-directed stimulus is related to mixed economy aspects, and it works for the low return investment, whereas this is not larger than the market economy.

The US has a strong and largest economy in the world for over 140 years. The GDP of the country is 22% of global GDP, but China is overtaking this ratio in terms of economic strength (Hong, Y. 2017). The GDP of China is based on purchasing power parity that highlights how economies can be stronger at absolute levels. In China, consumer goods are not expensive, so economists highlight that purchasing power is related to the money amount. Money is spent on similar goods and services when a country experiences low prices than others, and it provides an evaluation of income on the price differences. For example, the role of purchasing power party is central in evaluating price difference, if earning in New York is $50,000 per year, it is different from Beijing which is $50,000 per year, both will operate in different conditions, but the observations will provide a different data (Langfitt, F. 2014).

The United States of America is ranked number one economic power in the 21 of the 34 surveyed countries, while China is believed to be a top economic power by other 12, where there is a tie for top economy between China and USA in Lebanon. Usually, many non-European nations consider the USA as the top economy of the world, whereas many European countries like to see China at the top(Tauhman, B. 2007). For instance, in the survey of the countries in Asia-Pacific, around 46% state that USA is the top economy, whereas china has been suggested by 25%. In most of these countries, also, there is an ambiguity about the dominance of the USA and China, with such difference among the share about which country select the China and which country select the USA as the top economic power. Similarly, more think the USA is the top economy as compare to China in the sub-Saharan surveyed countries, but the people have different opinion. In South Africa and Nigeria, the trend to select the USA is a departure as of last year, where many from both of the countries term China as the top economy of the world.

To develop an understanding regarding the basic differences in American and Chinese ethics and culture, a visional image of Chinese and American ethical philosophies is pretty helpful.  The researchers describe that the foundation of ethics can be found in the larger level ethical environment and in the personal-level beliefs, both of these are made on ethical philosophies. Economic national norms and ideology are the most primary factors in the international set-up(Brockman, J., Pinker, S., Vinge, V., Rees, Sterling, B. 2014).

In the United States, business agreements describe the nature and the particulars of a business connection together with the commitments of all involved parties. It is a culture that these obligations are privileged to the letter mad the spirit of the agreement. People must be bound to such contracts once entered. It is both ethical and legal obligation by all the parties and shows the basic faith in truth. Agents of business will try to work in deals which are very valuable to the business parties they are working with. The signing of agreement is generally taken as the final part of the business association (Hong, Y. 2017).

Business ethics in China are influence by many factors. They trust that all the things must be in harmony, getting the things analyzed for longer terms. If the changes will be significant and disrupting, the Chinese must prefer not to involve in any kind of action. This sentiment is rooted in Taoism and Confucianism. Harmony is underlined to keep public order and peace and noticeably shows the way Chinese behave and think. Agreements and negotiations connect people by strengthen the human relationships more as compare to the legal binding. Managers in China take agreements as the initial step to a stronger business association with the partners.

Financial crisis in USA resulted in the assumption among the ordinary citizen of America is that the China has developed itself as the strongest economic power in the world(Brockman, J., Pinker, S., Vinge, V., Rees, Sterling, B. 2014). This perspective flourished in the toughest financial crises of 2009 and has continued even then the crises impact has started to decrease. United States media have regularly communicated the same thought. But it was deliberately illogical.The basic cause for Americans’ disappointment is the job opportunities. USA joblessness falls to 9 percent in the last two years. It became more when a number of Americans stopped searching for jobs. In comparison, Beijing disclosed less than 4.5 percent figure of its unemployment, but the included only such people who were reported officially(Tauhman, B. 2007).

The size and growth of the economies of China and Us have a relationship between capitalism and democracy. A look at the Chinese capitalist system and democracy clears the situation. From 1958- 1962, in China, 45 million people death occurred due to the largest social experiment. This experiment was Great Leap Forward, yet known as a disaster for China. It is a leading nation for export and is ahead of the United States. Scott, B. R. (2011) discussed the history of china did not allow to escape from poverty, but World Bank figures show poverty in China was 88.3% in 1981and in 2015; it was 0.7%. A third way was deployed as a success factor for the political and economic model that was grounded as socialism and capitalism. China is successful because the power of capitalism is exercised (Bergsten, C. F. 2007). Mao has an omnipotent grip on the economy of China, so the past few decades progressively held the concept of the free-market economy by reducing powerful impact and introduced private ownership (Hong, Y. 2017). Political capitalism forces are contributing to economic success because it is contributing to economic development.

Most of the reform reminded leaders in China are behind the success of capitalism because these methods stimulated economic growth. The economic reforms legalized private enterprises to move towards shareholders, partners, and individuals. Large scales of business and opening of stock markets allowed the setting of prices and wage rates, so supply and demands in the free markets established. The red hats reforms in this way allowed the Chinese to become red capitalists. The capitalist reforms brought many growing pains for economies. In rural provinces, families lost jobs, and the investment rate declined due to state-owned enterprises. Democratic reforms in China since 1976 allowed the communist party to do monopoly as decisions were only made by few elites. Due to democracy, people faced a free environment by discussing their public matters. In this situation, the government worked hard on individuals to bring social stability (Brockman, J., Pinker, S., Vinge, V., Rees, Sterling, B. 2014). The democratic or capitalistic economy in China allowed industries, farms, and enterprises to enter into profit-making frameworks. Free market demand and supply set price level, wage rate, and production.

Capitalism and democracy in the US are not related to each other but are two ideological pillars that can bring unprecedented freedom and prosperity. In Europe, corporate restructuring has changed the role of social welfare and job security. Democracy required adherence to social and informal regulations that can bring flaws in the constitution design. These rules also protect the threat of power about charismatic leaders. Democratic norms in the wake of the rule of law allow maintaining policy battles to secure the interest and freedom of policy. Social democratic policymakers foresee some symptoms about federal and state policies that work to levy a tax on the wealthy. There are two opinions about democracy’s impact on the US; one is in favor of capitalism, and the second is against it. Liberal intelligence activists try to save democracy and enhance involvement in political activities. It is also observed that democracy is beneficial to social trust and encouraging voter participation as well as civic engagement (Capitalism, C. 2018).

Trump’s involvement in development activities is seen under democratic reforms.

The impact of the Internet on the two national economies, China and America, is significant, with the change in time, this impact is becoming stronger, in the form of societal, global, ethical and way of socializing. Enormous sizes of business and opening of securities exchanges permitted the setting of costs and compensation rates, so supply and requests in the free markets set up. The red caps changes thusly permitted the Chinese to become red industrialists.The method of sharing information, ideas, and organizing flow of concepts is facing transformation. Increased connectivity through the internet has evolved all the economies in terms of social, economic, and technological aspects. These stages of transformation are also impacting on industrial factors. These technological factors are transforming the agricultural and health sectors (Scott, B. R. 2011). In the US and China, technological innovations are creating opportunities for economic development. The access to infrastructure, better facilities, and the internet ecosystem have paved the way for development. In addition, it has also built a system of competition where every company is competing, and entrepreneurs are trying to thrive.

The nurturing of human capital is maximized due to internet globalization and interaction between global economies. The Internet is making a strong contribution towards economic growth. In both nations, the maturity of the internet is at peak, and it is increasing living standards because it is similar to the advancement in increasing per capita income, so magnitude is a positive impact, since it enhancing internet-related growth. Business transformation is increasing due to community involvement in the value chain. Manufacturing has been revolutionized because products and services are technically improving, so a dynamic framework for business is operating (Capitalism, C. 2018). In different countries, fast-growing ecosystems are growing the use of the internet so better access and infrastructure are increased. Large economies are focusing on better manufacturing options with integrated developments under diversified supply chain. The performance improvement is seen under technical organizations because web-savvy SMEs are continually bringing development context into consideration (Dittmer, L., & Liu, G. 2006). Web knowledgeable small-medium enterprises are introducing more opportunities than other companies because internet involvement is significant in increasing exports.

US and China define capitalism in relation to national political policies as a compressive framework that can accelerate economic development. In China, capitalism is a part of all the systems such as political, social, and cultural control in all over the economy because it is linked with state-owned policies (Charles, F. 2013). The Chinese government is successfully implementing the policies of capitalism to bring growth and economic development as a part of national policies. For example, Chinese agricultural aspects are decollectivized, and certain reforms are introduced. China is now considered as an increasing hub of global economic growth due to its superpower aspects. However, some commercial conflicts prevail in this realm that is playing a key role in installing a successful system. Chinese authority, as a socialist country, assumes authoritative capitalism. China and capitalism are showing powerful relationship because social theories are building interrelated structures in society (Tauhman, B. 2007). Political private enterprise powers are adding to financial achievement since it is adding to monetary turn of events. A large portion of the change reminded pioneers in China are behind the achievement of free enterprise on the grounds that these strategies animated monetary development. The monetary changes sanctioned private endeavors to move towards investors, accomplices, and people.

US capitalism is enacting national policies under democratic regimes. US economic system has focused on Keynesian capitalism systems and ideas to support economic and monetary policies. Political economies are facing capitalism, private ownership structure, and legitimate means of transferring property are considered in the US under a policy framework. Keynes’s perception about macroeconomic forces that stand for the capitalist rules, and it needs government to act as under the business cycle framework. The business activities and political framework in relation to the economy activity. Socialism and capitalism are seen in different national policy to set up the planned economy. The impact of US capitalism framework on production activities is based on profit. US is a capitalism society where government is making national policies regarding taxation, regulation and subsidy. The democratic capitalism in America is making the ideology regarding tripartite system of market so a democratic polity prevails. In various nations, quickly developing biological systems are developing the utilization of the web so better access and framework are expanded. Enormous economies are concentrating on better assembling choices with coordinated improvements under broadened inventory network.

Economic growth and personal freedom are interlinked if viewed by the perspective of US and China. Growth is an essential factor in American where more opportunities are being generated for the people (Dittmer, L., & Liu, G. 2006). The economic freedom is to make the economy and autonomous one that can support the regulation process of the economy. The economic freedom in America is related to free trade, rule of law and property rights. This aspect is also linked to the constitutions of government and enable it to make a long last economic growth, prosperity and opportunity. The economic freedom allows prosperity and freedom creates a connection for economic segments. This relationship matters most for the economy of China. The economic freedom thrives societies and engage them in financial authority. The Chinese economy consider freedom a fundamental right for human being so the score of China is 59.5% that is making the economy get highest GDP growth. The personal freedom and economic growth is also seen under the political policies. The both entities are linked in terms of democratic policies and considered a basic right for community as it helps develop certain segments of the society (Cruxer, T. 2018).

References

Bergsten, C. F. (2007). The United States and the world economy: foreign economic policy for the next decade. Washington: Institute for International Economics.

Brockman, J., Pinker, S., Vinge, V., Rees, M. J., Dennett, D. C., Dyson, G., … Sterling, B. (2014). What should we be worried about?: real scenarios that keep scientists up at night. New York, NY: Harper Perennial.

Capitalism, C. (2018). Map of China. Capitalism Without Democracy, xviii-xviii. doi: 10.7591/9780801461897-004

Charles, F. (2013). Predator Nation Corporate Criminals, Political Corruption, and the Hijacking of America. Crown Pub.

Cruxer, T. (2018). China Matters: Chinas Economic Impact in Latin America. The SHAFR Guide Online. doi: 10.1163/2468-1733_shafr_sim190130006

Dittmer, L., & Liu, G. (2006). Chinas deep reform: Domestic politics in transition. Lanham, MD: Rowman & Littlefield Publishers, Inc.

Hong, Y. (2017). Driving Capitalism to Western China. University of Illinois Press. doi: 10.5406/illinois/9780252040917.003.0002

Langfitt, F. (2014, November 7). Capitalism Is Making China Richer, But Not Democratic. Retrieved from https://www.npr.org/sections/parallels/2014/11/07/362284553/capitalism-is-making-china-richer-but-not-democratic

Scott, B. R. (2011). The Transformation of US Capitalism and Democracy, 1830–1937. Capitalism, 427–514. doi: 10.1007/978-1-4614-1879-5_13

Tauhman, B. (2007). Economic Impact of Internet in China. Chinese Business Review, 06(01). doi: 10.17265/1537-1506/2007.01.004

 

Types of Market Structures

Pages:4

 Q3

  1. Discuss the key characteristics of three main market structures, perfect competition, monopoly, and oligopoly?

The four main market structures that exist in the 21st century’s capitalist world are perfect competition, monopolistic competition, monopoly, and oligopoly. Each structure differs in terms of the number of firms (sellers) and buyers, freedom of entry, nature of products offered, and the demand for certain products within any market. This feature delves into finding out the essential characteristics of perfect competition, monopoly, and oligopoly and how one differs from others.

Perfect competition denotes a market structure that can simply be put be described as the “free market.” The number of buyers and sellers in this market is numerous, which means that buyers are not forced to buy their essentials from only a few sellers, and neither can sellers sell only to a selected few customer base. Restrictions for new-comer sellers in such a market are negligible. Hence there is considerable competition among the sellers, which makes them want to excel in their services as a result of which buyers have many options about substitutes, quality, and prices. Besides, in such a market, no seller has the absolute power to influence or determine rates individually. As far as firm revenues are concerned, firms operating in perfect competitive markets earn zero net profits because when firms start making positive economic profits in the outset, more firms enter the industry considering it a valuable one. However, with the ensuing competition, prices drop, causing losses and the exit by many firms that entered the market. This lead towards higher supplier by fewer firms which earn them profit, but the net profit remains zero at the end.

The second prominent market structure is the monopolistic structure in which there is only one seller, although buyers are many. In the monopolistic markets, due to the lack of competition, the seller determines prices as they desire and making supernormal profits. There is no threat to the hegemony of the single seller as there exist enormous restrictions for entering the particular market in the form of licenses, patents, the technological superiority of the hegemon, lack of substitutes, and control over raw material or other essential products needed for the manufacturing of any product.

In the oligopoly market structure, there are various sellers but still less than in the perfect market structure. Each seller has a significant share in any industry overall. Because the competition is relatively nominal as compared to the perfect competition, so the firms set prices as per their wishes in this structure too. Often times, firms functioning in such structures also collude together to set prices or outputs at certain levels to earn almost supernormal profits. They adopt this colluding technique because, at the peak of their collaboration, they cumulatively act as a monopoly. For this purpose, they may also lower their supplies so that the collective output equals just to that of a monopolistic structure. Nonetheless, they somehow compete via different advertising techniques, etc. however, there also exist some factors that might call-off collusion. For example, in several places, the fixation of prices by the firms is illegal as in the United States. Moreover, when the only competitors in the market are one’s arch competitors, then it gets challenging to cooperate over something that will affect one’s earnings and profits. Similarly, price-leadership is also a significant characteristic of the oligopolistic market structure. In this mechanism, that can also be described as parallel pricing, the dominant seller in the market set a price, and the rest of the sellers have to follow because they will not be able to afford to compete with the dominant seller by selling at higher rates.

  1. How does a monopoly market differs from a perfectly competitive market? Which is more preferable for consumers? Use a diagram to assist your discussion.

Monopolistic market structure is precisely opposite of the perfect competition market structure. In the former one, there exists only one supplier of any product or service. In the later one, there exist a lot of many suppliers, and customers have numerous alternatives to choose from in terms of the supplier or even the product or service. In the monopolistic market, prices are determined as per the wishes of the market hegemons who always try to earn supernormal profits whereas, in perfect competition, market prices are driven by rivalry among many competitors, which leads toward providing better quality products at lower prices to the customers. However, this is not the case in the monopolistic markets, where consumers are forced to t buy the available products mostly at unreasonably high rates. This factor can lead to innovation stagnation as the suppliers will not bother to improve their services because they are aware of the fact that the customers do not have any other alternative and will stay loyal to them although forcefully. On the other hand, in the perfect competition markets, competition leads towards production of more output, as also depicted in the graph, and innovation aimed at improving services or the quality of the products that any firm offers, which in turn makes the lives of the consumers easier as time passes.

 

For the reasons mentioned above, one can safely state that consumers prefer perfect competitive market structures all around the world over the monopoly market structure. Consumers in the perfect competition market have complete information about the products or services that they are consuming, as in about the processes and materials adopted for manufacturing and providing products and services, respectively, by a firm.They are also provided with a number of alternatives as well as with ample supply of outputs.

 

Perfect competition markets are an epitome of the free market, a concept mainly believed to have been proposed by eighteenth-century Scottish political economist Adam Smith. As advocated by Smith, such markets are regulated by an “invisible hand” that keeps the order of the market intact, particularly the prices, as clearly manifested in a perfect competition market. It is, however, important to note that perfect competitive markets do not exist in today’s world. The agriculture sector also only comes a little close to this structure.

From thegraph as well as from the analysis presented above, it can also be deduced that monopolistic market structures thrive at the expense of the consumers’ economic interests and producer surplus is far greater than the consumer surplus as also depicted in the below diagram.

Therefore consumers widely acknowledge that their needs get exploited in such a system and hence despise it over the perfect competition market.

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