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Double Marginalization
Double marginalization is a vertical externality that occurs when two firms with market power (i.e., not in a situation of perfect competition), at different vertical levels in the same supply chain, apply a mark-up to their prices. This is caused by the prospect of facing a steep demand curve slope, prompting the firm to mark-up the price beyond its marginal costs. Double marginalization is clearly negative from a welfare point of view, as the double markup induces a deadweight loss, because the retail price is higher than the optimal monopoly price a vertically integrated company would set, leading to underproduction. Thus all social groups are negatively affected because the overall profit for the company is lower, the consumer has to pay more and a smaller amount of units are consumed. Example Consider an industry with the following characteristics - \text\quad \mathrm=10-p \text\quad \mathrm= C'(\mathrm)=2 \text\quad \pi = p \cdot \mathrm - c \cdot \mathrm In a mono ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Externality
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All consumers are all made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving the benefit of enjoyment from smelling fresh pastries every morni ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Perfect Competition
In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In theoretical models where conditions of perfect competition hold, it has been demonstrated that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium would be a Pareto optimum. Perfect competition provides both allocative efficiency and productive efficiency: * Such markets are ''allocatively efficient'', as output will always occur where marginal cost is equal to average revenue i.e. price (MC = AR). In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P = MC). This implies that a factor's price equals the factor's marginal revenue product. It allows for derivation of the sup ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Supply Chain
In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activities, information, and resources involved in delivering a product or service to a consumer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product and delivering the same to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains. Suppliers in a supply chain are often ranked by "tier", with first-tier suppliers supplying directly to the client, second-tier suppliers supplying to the first tier, and so on. Overview A typical supply chain begins with the ecological, biological, and political regulation of natural resources, followed by the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Consumer Surplus
In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus (after Alfred Marshall), is either of two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay. * Producer surplus, or producers' surplus, is the amount that producers benefit by selling at a market price that is higher than the least that they would be willing to sell for; this is roughly equal to profit (since producers are not normally willing to sell at a loss and are normally indifferent to selling at a break-even price). Overview In the mid-19th century, engineer Jules Dupuit first propounded the concept of economic surplus, but it was the economist Alfred Marshall who gave the concept its fame in the field of economics. On a standard supply and demand diagram, consumer sur ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Vertical Integration
In microeconomics, management and international political economy, vertical integration is a term that describes the arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It contrasts with horizontal integration, wherein a company produces several items that are related to one another. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership but also into one corporation (as in the 1920s when the Ford River Rouge Complex began making much of its own steel rather than buying it from suppliers). Vertical integration and expansion is desired because it secures supplies needed by the firm to produce its product and the market needed to sell the product. Vertical integration and expansion can become undesirable whe ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Franchise Fee
A franchise fee is a fee or charge that one party, known as the franchisee, pays another party, known as the franchisor, for the right to enter in a franchise agreement. Generally by paying the franchise fee a franchisee receives the rights to sell goods or services, under the franchisor's trademarks, as well as access to the franchisor's business processes. Often, the franchisee fee includes some assistance from the franchisor in opening the franchised business. Scope By joining a franchise, an investor or franchisee is able to run a business under the umbrella of the franchise. The franchisee must pay a franchise fee, which may become costly. In the United States, it may amount to thousands of dollars. In return, the franchisee may enjoy the use of the franchisor's system and name for a limited time, as well as assistance. Such help includes location assistance for the outlet. The franchisor may provide initial training and an operating manual. Then the franchisor may also ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Nonlinear Pricing
Nonlinear pricing is a broad term that covers any kind of price structure in which there is a nonlinear relationship between price and the quantity of goods. An example is affine pricing. A nonlinear price schedule is a menu of different-sized bundles at different prices, from which the consumer makes his selection. In such schedules, the larger bundle generally sells for a higher total price but a lower per-unit price than a smaller bundle. References and links Definition on About.com Walter Nicholson, Christopher Snyder - Microeconomic Theory: Basic Principles and Extensions, Eleventh Edition See also * Two part tariff *[...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Resale Price Maintenance
Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), at or above a price floor (minimum resale price maintenance) or at or below a price ceiling (maximum resale price maintenance). If a reseller refuses to maintain prices, either openly or covertly (see grey market), the manufacturer may stop doing business with it. Resale price maintenance is illegal in many jurisdictions. Resale price maintenance prevents resellers from competing too fiercely on price, especially with regard to fungible goods. Otherwise, resellers worry it could drive down profits for themselves as well as for the manufacturer. Some argue that the manufacturer may do this because it wishes to keep resellers profitable, thus keeping the manufacturer profitable. Others contend that minimum resale price maintenance, for inst ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Competition
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, individuals, economic and social groups, etc. The rivalry can be over attainment of any exclusive goal, including recognition: Competition occurs in nature, between living organisms which co-exist in the same environment. Animals compete over water supplies, food, mates, and other biological resources. Humans usually compete for food and mates, though when these needs are met deep rivalries often arise over the pursuit of wealth, power, prestige, and fame when in a static, repetitive, or unchanging environment. Competition is a major tenet of market economies and business, often associated with business competition as companies are in competition with at least one other firm over the same group of customers. Competition inside a company is ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics Models
Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes what's viewed as basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on these elements. Other broad distinctions within economics include those between positive economics, describing "what is", and normative economics, advocating "what ought to be"; between economic theory and applied economics; between rational an ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Competition (economics)
In economics, competition is a scenario where different economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the same (legal) firm. are in contention to obtain goods that are limited by varying the elements of the marketing mix: price, product, promotion and place. In classical economic thought, competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater the selection of a good is in the market, prices are typically lower for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly). The level of competition that exists within the market is dependent on a variety of factors both on the firm/ seller side; the number of firms, barriers to entry, information, and availability/ accessibility of resource ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Imperfect Competition
In economics, imperfect competition refers to a situation where the characteristics of an economic market do not fulfil all the necessary conditions of a perfectly competitive market. Imperfect competition will cause market inefficiency when it happens, resulting in market failure. Imperfect competition is a term usually used to describe the seller's position, meaning that the level of competition between sellers falls far short of the level of competition in the market under ideal conditions. The structure of a market can significantly impact the financial performance and conduct of the firms competing within it. There is a causal relationship between structure, behaviour and performance paradigm. The characteristics of market structure can be measured by evaluating the degree of seller's market concentration to determine the nature of market competition. The degree of market power refers to the firms' ability to affect the price of a good and thus, raise the market price of the go ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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