Neoclassical model examines the commodity prices influences by grouping them into two categories; side of supply (such as: right kind of labour, raw materials, machinery, power and the used technology) and side of demand (such as: influences affecting consumer demand e.g. income, lifestyle, age, and the social conventions and expectations)
third model; F.A. Hayek is representing the third theoretical perspective of the competitive market. He admire the basic idea of the Neoclassical model (perfect competition) pointing out its main weakness; lack of emphasis on the process of competitive price information. Hayek theory concentrates in the process of competition according to consumers taste and how prices (are signals) play a role in transmitting information among concerned individuals at a surprisingly low cost. When the demand for certain product increase, then the suppliers are encouraged to increase their output and consequently the product price will increase. The output will continue to increase till the product price stop rising, where demand and supply are equal in the equilibrium price. According to Hayek, since he is concentrating on the process the equilibrium prices may never take place.
At the same time, prices can not always be relied upon to provide the necessary signals and incentive to allocate resources to their best uses. They may reflect only the individual consumer's satisfaction and exclude the wider benefits to society as a whole. In other words, they carry the wrong information or highly incomplete information; prices may then come to reflect private costs rather than socials costs which called "Externalities" in economists' language.
Externalities are costs or benefits of a transaction that are incurred or received by other members of the society but not taken into account by the parties to the transaction. They are considered as one of market failures since most of the times are harmful for consumer health as well as environment e.g. factory pollutions, manufacturers and petrol used cars.
Fourth model; Amarya Sen, which draws attention to the conflictive nature of markets rather than their harmonious aspect . Sen's considers the "power balance". The power of this nature distributes gains as a result of exchanging in Market not according to efficiency. Here some inequality is shown up this is why he emphasized on the idea of freedom as enabling powers and capabilities.
The concept of freedom appropriate to an approach such as Sen’s would on the other hand be a concept of freedom as enabling powers or capabilities. As this concept of freedom emphasizes the actual opportunities available for people to act upon, it is sometimes refereed to as positive freedom. In this context, Sen's arguments are new and refreshing. Sen himself has come out in favor of liberalized markets, which are necessary to modernize developing economies, but he has also emphasized the need for state support and social welfare programs to cushion the blow of market machinations. He said ‘We need markets for efficiency and growth and innovation, but we need social programs to ensure that everyone has basic freedoms’.
Resources:
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packet switching - "breaks up digital information into individually addressed chunks, or packets, so that many users can share a single channel." ()
B) What can governments do to create a competitive economic environment in the “New Economy”? Explain how governments can prevent market failure.
I will explain what the government role to create healthy competitive economy environment then I will discuses the government function and some concept like, Social efficiency, Equity, Macro economic stability and growth, through two issues; Monopolies in the market and regulation and privatization as tools that government can use to Create policies for equity, protect people and economic growth. After that, I will talk about how Governments can prevent market failure through; Public goods and Missing market. Finally I will mention some Cause of government failure; Decision makers have their own agendas and Rigidities.
The government have important influences on economic activities through their expenditures, taxes, transfer programs, regulations and debt management. And control all public officials, agencies, government bodies, and other organizations under direct control of central and local governments. But the government can not create a competitive economy environment without making equity in social and economy function which can be made through encouraging new Service delivery in a liberalized environment in a country revolve around two protagonists - the citizens and the government, by regulation and protection. To enjoy an acceptable quality of life and to participate in the global economy. The government must be citizen-centric in its focus and adopt policies that would endorse the development of all citizens without inequity. The Government must be close to its citizens through the services it provides. The services must be deliverer with suitable systems for transparency and accountability. These requirements are the foundation blocks of excellent governance.
The government can play many different roles in market economies, but there is common agreement on a list of basic objectives that need to be provided by the government for the proper operation of markets in transition economies, like:
- Improve economy efficiency
- achieve some accepted slandered of equality
- protect individuals from other and from themselves
- stability the economy
- influence the rate of economic growth
- Protect life and property
Government also can put into action to increase the Competitive in the market, as the Competition make some pressure on businesses to raise their diversion - in that way motivating innovation and creating new business and employment opportunities. also competition brings up benefits to customers, like prices, quality and choices. I will explain and explore some of the government role in creating a healthy competitive economic environment:
MONOPOLY IN THE MARKET
Monopolies are considered harm full because it has less incentive to be efficient in the absence of effective rivals. It may have higher costs, and price to the consumer are higher than they need be, also the quality of the product/service may be is not good. The Government's role revolves around the development of a national policy, legislation and regulations to increase the competition. When these activities have been adequately addressed, the Government must then take some definitive action to promote the equity, also the government must uses some basic institutions to protect individual rights in a market economy, like Police protection is used to prevent individuals within a society from violating one another’s rights. National defense is used to protect the rights of individuals within a nation from foreign aggressors, so the government is obliged to be concerned to prevent the monopolies growth by intruded legislation in an attempt to control the growth of monopoly and cartel agreement. For example in UK, the monopolies and mergers commission makes reports are the extent to which a monopoly situation could result from the proposed merger. This kind of government concern would be an example of a situation where the ‘free competitive market needs’. The interaction of the state in order to protect it and maintain freedom.
B- REGULATION AND PRIVATIZATION
Many natural monopolies such the public utilities (gas, water, electricity, real road and telephone) have been controlled by public sector which has problem to be efficient if it face no competitive form rival firms.
With privation of the 1980s, however, and the planned transfer of many of these corporations into the private sector alternative methods of control had to be devised, it was discovered that monopoly in the privet sector may will not operate any more efficiently than the monopoly in the public sector. For these reason it was urged by many economists that issue of ownership of the utilities is less significant than the issue of degree of competitive facing it. As result, long with privatization went a need to regulate the performance of the industry in order to ensure that, it did not abuse it position of power in the market. In this way, attempts were made to mimic the market, and make the privation monopoly industry. for example: the British telecom and British gas are national monopoly, when they were privatized in 1984 and 1986 respectively, they become privately onward monopoly, rather than public owned monopoly, and so some additional regulation was propos to encourage these firms to efficient improving the quality and the serves while keeping costs to minimum. The regulation in that case took that form of price regulation, so the pricing formals wear developed that had to be the newly privatized industries. With that kind of regulation the government can create a healthy economic environment.
Now I will explain how government can prevent market failure after identifying the market failure, and what is the government role to protection the individual, market, community and firms.
Market failure :it’s the failure of the market economy to achieve an efficient allocation of resource. The market failure has several important circumstances under which market failure to allocate resource with reasonable efficiency, like:
- Where there are goods whose consumption cannot be restricted to those who are willing to pay for them- called public goods.
- Where there are resource that can be used by everyone but belong to no one- called common property resources.
- Where people not party to some market bargain are nonetheless significantly affected by it- externalities.
- Where one party to a market transaction has fuller knowledge of its consequences than is available to the other party- a situation referred to as asymmetric information.
- Where needed markets do not exist.
Form these points which represent the rezones for the market failure I will chose two of them to discuses in some detailed to show how the government can prevent the market failure.
- THE COMMON PROPERTY
A common property resource is one that rivalries but non-excludable which main that on one has exclusive property right to it, and it can be used by anyone. No one owns the ocean's fishes until he caught it as example, the world's international fishing area are common property for all fisherman, if by taking more fish one fisherman reduce the catch of other one, he dose not caught this as a cost although it is cost to society . The result has been called (the tragedy of common), the tendency for commonly held property to be overexploited, often to the extent of distraction.
It is socially optimal to add to a fleet that is fishing any give fishing area until the last boat increases the (value of the fleet's total catch) by as much as it cost to operate the boat. This is the sizes of fishing fleet, that a social planner would choose as one of solution to the common property problem that government should take it to prevent the market failure .in that circumstance is to agree on the optimal level of use, and the police foe this resource to reduce it by use as fishing quotas and hunting licensees. The government should enforce restriction and they have to be some regulation to control the number of fish cough in the high seas. For example, the Eurobond union has a common fishing police covering the Atlantic territorial waters of it market countries. Since 1983, total allowable catches for all main species have been set annually and divided up into catch quotas for each member country, and that is one of the tools that governments can use to prevent the market failure.
- EXTERANLITIES
It's cost or benefits of transaction that are incurred or received by other members of the society, but not taken into a account by parties to transaction. Externalities arise in many different ways, and they my be beneficial or harmful.
Harmful externality; harmful side effect that affects an uninvolved third party. In most events, it constitutes external cost. An example of this would be the construction going on the LIE. Because the roadway is being widened, trees along side have been taken down, thus exposing the once secluded service road and the homes that are alongside it. This construction has annoyed drivers, who have to put up with the mess and homeowners as well.
Benefit externality; beneficial side effect that affects an uninvolved third party. for example can be when some one paint his hose and enhance the neighbors(view and the value of their properties) or from the construction on the LIE may cause traffic jam, but local businesses may benefit from the traffic, which detours by their shops, and the workers who may require services from one of the businesses. Externalities create a divergence between the private benefits and cost of economic activity and the social benefits and costs.
Private cost; are those cost that incurred by the privities directly involved in some economic activity. Social cost; are the costs incurred by the whole society, they are the privet befits plus any benefit to thread parties. Society's resources are the optimally allocated when social marginal cost equals social marginal benefit .when this happen, there can be no social benefit in reallocating resources among different lines of production. Free market will not produce social optimality when there are discrepancies between private and social costs and private and social benefits:
1-the output of the firms that create harmful externalities will exceed the social optimal levels.
2- Outputs of firms that create beneficial externalities will be less than the society optimal levels.
So the government will illustrate some policies for the negative externalities in the control of one of there most important applications, environmental damage caused by pollution, nevertheless the government has two tools to prevent the pollution which represent the extremities which is one of the market failure cusses.
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Direct regulation to control the pollution; It's a common method of environmental regulation, for example UK cars emissions standards must be met by all new cars and by cars over three years of age when the take there annual 'MOT' test ,also the government gradually reduced the amount of lead allowed in petrol and pended tax in countries for drivers to switch to unleaded petrol ,also the clean air act obliged people (CAAOB) to switch from cool to smoke less fuels.
2- Emissions taxes; the advantage of such taxes is that they internalize the externality, which means increasing the firm's private cost by the amount of the external cost. This make private and social cost the same, with the result that efficient outcomes can result form decentrized decision made by individual producer.
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Describe a technology firm that you think will be successful in the “New Economy” Choose a firm that is publicly traded on the Nasdaq – see: or Specify the industry, good or service, and the firm’s characteristics. Explain your answer
Form' nasdag .com' I chose the KODAK company as a technology firm in public treaded, that I think it has success in the' new economy' I will introduce KODAK company history. Then I will describe the company characteristics; that succeed in the new economy, through 'STEP' analysis and what firm did to improving and creating new products, processes Speed, flexibility in change in competitive manner. the ' HRM' and the innovation strategy. Finally I will set my own conclusion.
Through this slogan formulated by its founder George Eastman, Eastman Kodak Company revolutionized and set off as the pioneer in modern imaging. From its initial introduction of the dry glass plate process technology and machine, Kodak has further introduced novel technologies in imaging, which throughout the years, redefined society’s life styles. Through its basic principles of low-cost mass production, extensive advertising, focus on customers and international distribution, Kodak has become one of the world’s most recognized brands with its products becoming the market’s beacon for the photographic industry for more than a century now.
With the emergence of competition and antitrust concerns, Kodak has evolved, through diversification strategies, into an enormous company catering to pharmaceutical, health care, electrical, computer and chemical products among others. The company, as a consequence, moved away from its core competencies, was unable to compete with its rivals competently and has suffered from heavy losses.
As his first move to answer this predicament, newly appointed chief executive officer George MC Fisher has cut down costs and debts through divestiture of non-imaging related business segments. At present, Kodak is engaged primarily in developing, manufacturing and marketing traditional silver-halide photoimaging products, services and solutions for consumers, professionals, healthcare providers, the entertainment industry and other commercial customers.
In its continuing thrust to foster long-term growth, development and success, Eastman Kodak Company is now faced with the dilemma to sustain in the mature and slow-growing silver-halide business. In addition, the company is contending with a legion of competitors to achieve and sustain a dominant position in the emerging digital imaging business, which at the moment poses encouraging and promising opportunities.
Technological Environment. The influx of technological advancements into the photographic marketplace has presented the industry with a unique set of challenges and possibilities. Technological discoveries and enhancements may foster, or even hasten, the growth of the traditional silver-halide market. The Advanced Photo System (APS), for example, a product of technological advancement currently being developed by nig industry players may bring silver-halide-based products into a higher level.
In addition, with the onset of digital technology, the industry is faced with chance to expand its business through venturing more into digital imaging which is currently putting forth enticing opportunities. On the downside, considering the electronic nature of the products offered in line with digital imaging (e.g. Scanners, printers, etc.), entry of potential competitors, particularly from the electronics group who may have equally competent resources and capabilities, is at a height. As a result, the structure of the industry may be altered.
Socio-Cultural Environment. With society’s increasing awareness over environmental preservation, possible hindrance in the growth of the players in the industry is present, The film marketed by these companies, as an example, are currently packaged in plastic non-biodegradable tube cases. As a response to environmental concerns and grievances, repackaging using nature-friendly materials may be ensued. This also holds true with single-use cameras (SUCs) which is primarily composed of plastic non-biodegradable materials. Here, companies may either reduce its margin or impose higher prices over its products in repackaging its products to be environmental-friendly brought by a possible increase in its production cost.
The market’s culture may also impede the entry of global industry players. As an example, with Japan’s resistance to Western influence and its society’s higher preference over locally made products, foreign industry players would most likely have difficulty in penetrating in this geographical segment. In addition, with the fact ascertained that photographic products are usually used in instances of special occasions (e.g. weddings, birthdays, holidays, fiestas, etc.), regularity of celebration of these occasions would deeply affect the demand of the products.
Economic Environment. The global scale of the photographic market presents some threats to its core business. Sales in its geographical segments would generally differ according to a country’s economic state. Sluggish economy or economies under recession would decrease sales as a result of delayed spending on leisure goods. In addition to the state of the economy, tariff and foreign trade laws may render leisure good spending in lull brought by higher prices as a result of the duties imposed on the goods.
Tourism economy, as a whole, has a direct effect on the industry. As the number of tourists increase, usage of photographic materials would most likely increase demand.
Legal or Political Environment. Legal influences may hamper the growth of some players in the industry. Antitrust laws, for example, may limit expansion of industry players through its provisions. On the brighter side, however, this may protect the position of a company in the market. This holds true in the case of Kodak and Polaroid in the late 1980s when Kodak engaged into marketing instant cameras. Foreign laws, in addition, in its move to protect local firms, may thwart the entry of global producers in its market. Furthermore, patent and proprietary rights laws would deter firms to expand, venture, and produce patented products.
As a part of a hyperactive competitive environment, Eastman Kodak must be able to efficiently and effectively strategize in order for it to be able to sustain its position in all areas of the market, existing and emerging alike. However, the success of the company’s adopted strategy would depend upon the reaction of its competitors; thus, it is imperative that in its strategies, competitors’ competitive profile must be given proper consideration.
Kodak is faced with a legion of competitors; among which, Polaroid, Agfa, Fuji and Konica pose as the major rivals of the company. Polaroid. Between the latter mentioned competitor, Polaroid shows the lesser degree of competition with the fact that Kodak is unable to directly compete in the instant photo imaging business as a result of a previously ruled antitrust lawsuit. As a result, competition between the two companies would be on attracting and capturing the market’s preference between instant photography and traditional silver-halide imaging.
Agfa. Agfa, known as the Kodak of Europe for it’s typically the same business strategy, enjoys dominance over the European market. As the second largest chemical manufacturing company, the company offers its products (particularly in its developing equipment and imaging business) at a lower price compared to that of its competitors through the concept of vertical integration — a strategy previously enjoyed by Kodak until the time it has divested of its chemical manufacturing business, Eastman Chemicals, in 1993. Its current move to increase market share in the US market through its advertisement campaign of free film rolls clearly shows the seriousness of the company to compete with Kodak. In addition, with its less-priced products at hand, the company demonstrates a greater degree of competition for Kodak.
Fuji Photo Film Company. Among its competitors, Fuji presents to be the closest rival of Kodak. With its product offerings at the same nature with that of Kodak, the degree of their rivalry may also be evidenced by the continued battle of lawsuits. The fierce competition between these firms stem from Fuji’s offering of low-priced films which stirred and reduced Kodak’s market share by 10%. Also, Fuji’s strong foothold in the Japanese market which hampered Kodak’s position and made the latter felt in an unfair situation contributed to the perceived battle. Recently, in its move to topple over Kodak, Fuji moved for an establishment of a US division focusing solely on digital imaging. Through this move, the company will be able to market products which it has already offered in its Japanese market. Furthermore, it has proposals of hooking-up with computer companies for its products to be integrated. In computer systems. These, among others, present a more pronounced competition for Kodak.
Other Competitors: Aside from the earlier discussed companies, Konica is another competitor of Kodak in the imaging business. It has been said that together with Agfa and Fuji, Konica was able to decrease Kodak’s market share in the traditional imaging and photofinishing business. Though at a lesser degree, private label films also compete with Kodak.
Other competitors of Kodak are camera manufacturers such as Canon, Minolta, and Olympus. With the dawn of digital imaging, electronic and computer companies agitates competition to be stiffer.
Marketing: With the apparent threat of a possible declining market shares due to penetration of different aggressive competitors in the industry, Kodak does not take all these sitting down. It has previously suffered a sad fate in 1992 when it launched the photo CD that was designed to allow users to transfer photographs to a digital disk. This impressive innovation was unexpectedly a failure because Kodak failed to utilize an effective marketing strategy to convince the public of the superiority of photo CD to traditional photography. It also suffered the same fate when it faced direct competition with Polaroid instant cameras way back in 1976. Its development of instant cameras was continually plagued with problems. In a competitive industry as imaging, building brand loyalty is essential so as to lower customer defection rate at a desirable level. Hence, an effective marketing strategy should be in place. In addition, a successful marketing strategy will help Kodak lower its fixed cost of acquiring new customers.
With almost a year in position, Fisher is convinced that Kodak needs to establish a marketing strategy that will facilitate in its turnaround period. In response to this, Gustin is hired to assist Kodak in its much needed marketing expertise. This move is expected to yield positive results in the marketing area.
Human Resources: With Fisher as CEO, he is determined to steer Kodak in the right track and improve its current condition. He believed that he can realize this vision by hiring the right people with the right skills. He started hiring competent personnel from different companies to fill crucial positions in Kodak such as placing Kavetas as Chief Financial Officer and Greene as treasurer who are both former IBM personnel. He also employed Fitzpatrick as controller, formerly from General Motors and Carl Gustin as head of Digital and Applied Imaging a former Apple Computers employee. The diverse composition of Kodak’s top management poses an optimistic outcome in achieving its ultimate goal of a complete turnaround for the company. It is believed that this diverse composition will provide the necessary strategic focus that will set Kodak in the right direction and will help reduce the threat of corporate inertia and faulty decision-making.
Innovation: The development of other technologies such as digital cameras has attracted big and small firms to enter into the industry. Since this industry (digital cameras) is in its embryonic stage, the company is expected to face more competition in the near future. In addition to this, more and more substitute products are coming out of the market, which in the long run may create a shift from films to memory cards (used in digital cameras). If this happens the company’s core business will have to be reinvented.
Kodak’s position in its industry is strong. It captures majority of the market share in the global arena. The company’s presence in major cities around the world demonstrates its broad market coverage. Any observer can quickly affirm Kodak’s dominance in the industry because of its strong brand name. It should be mentioned that the company uses this strength very well to fight competition.
The company’s research and development skill is commendable. Kodak has pioneered in introducing several innovations in the market (eg. PhotoCD, scanners, among others). This aggressive research and development facility is but appropriate for a company that has grown competitive because of the many technological breakthroughs. This skill of the company has enabled it to further expand its product lines.
With regard to its management, Kodak’s human resource can be described as capable. Its corporate management is currently expected to propel the company to greater heights. The presence of big names in Kodak tells us that the company’s future is promising.
Development, and success not only within the organization but also with its external environment (stockholders in this case). First, it must give more emphasis on its core business, the traditional silver-halide imaging business. This move is in consonance with the fact that traditional imaging is the identifier of the company in the market. Through it, Kodak has grown into a big company with the unique resources capable of developing or enhancing silver-halide-based products. With the fact ascertained that the market of silver-halide products is in a mature stage, the company must exploit new and untapped markets such as China, Hong Kong and Taiwan among others.
Enforcing its brand reputation through extensive carefully devised advertising campaign and proper positioning of products would advance the company in penetrating into these markets. Venturing into this untapped market would also present Kodak with various opportunities. Among others, achieving economies of scope is evident. In China for example, where labor is at a low-cost, the company can produce products at a low cost. Through this, the company would be able to compete more intensely with its close rivals Fuji, Agfa, and Konica whose advantage over Kodak is brought by its less-priced products. In addition, the company may also be able to achieve bigger profit margin as a result of low production cost brought by economies of scope.
The latter proposition, if undertaken by Kodak effectively, would increase the company’s share in the international market, which at the moment is at a close proximity with its major competitor who is just behind by just 2%. However, the company must not be complacent with its dominance in the American market and remain focused in its venture in foreign markets. It must be remembered that foreign competitors are at an aggressive state to capture the American market. This is clearly presented with Fuji cutting Kodak’s market share by 10% and Agfa’s film giveaways.