Chapter 5: MGTA01 (Textbook Notes)

Chapter 5: MGTA01 (Textbook Notes)

Market - A Bunch of Activities, Not A Place

Market: Interaction of buyers and sellers, exchanging information about products and services for sale

Elements to understand a market + how it functions:

1. Potential customer searches for product/service
2. Vendor highlights features and benefits of product
3. Information is exchanged between customer and vendor
4. Prices negotiated
5. Sale is completed/not completed

Advantage of market system:

• Entrepreneurs are encouraged to start a business
• Consumers have choice between suppliers
• Sellers entitled to seek profit
• Both parties get what they want

Identifying Your Customers - Who Is In Your Market?

Entrepreneur must have clear goals:

• Who are potential customers
• What potential customers want + why
  • Points above is the target market

Target market: Particular group of people who share similarities (eg. age, gender, income, location) as well as needs & wants

Market Structure: Various combinations of # of buyers and sellers in a market

Simplest market cases:

1. Market with many sellers
2. Market with small number of sellers
3. Market with 1 seller
4. Perfect competition - many sellers + lots of choice

Perfect Competition: Market has large number of small sellers, sellers have similar product, similar price, with lots of choice

Market share: % of individuals firm’s sales relative to the total sales within a given market

Market price: The ultimate price that buyers and sellers agree on (eg. if it’s too high buyers won’t buy it, too low sellers won’t make profit)

1. Market with small number of sellers

Oligopoly: Market in which products are available from only a small number (eg. 3-4) of large suppliers

• Once market becomes oligopoly, it’s hard to reverse it
• Eg. airlines
• Most markets become oligopoly because of barrier to entry

Barrier to entry: business/industry/product is difficult/time-consuming/expensive

• Eg. secret/super advanced technology that new competitors will be hard to obtain making selling prices a lot higher than the more mature business

Economies of scale: (term from previous chapters) producing quantities in bulk = reduce production costs

Barrier to exit: any reason why leaving a business/industry is difficult/time-consuming/expensive

1. Market with 1 seller

Monopoly: Market where there is only one available supplier

• Monopoly can happen for a few reasons:
  • Business discovers highly-specialized technology that rivals cannot duplicate
  • Business has brought exclusive control of raw materials
  • Business is more competitive than rivals by a lot

Natural monopoly: Business for whatever reason (eg. size, efficiently, exclusive access) will be cheaper than rivals

• Note to self: I think monopoly is the general term and natural monopoly is reasons why monopoly could happen?

Legislated monopoly: A business that enjoys exclusive right to sell a product/service because the government gave that right legally

• Eg. LCBO

Monopolistic Competition - A Combination of Perfect Competition, Oligopoly And Monopoly

• Characteristics of monopolistic competition:
  • Many sellers (indicating few barriers to entry)
  • Small number of sellers (eg. 4-5) are larger than the rest

Differentiation: Business activities designed to convince potential customers that your product i different/better than competitors products

Branding: Efforts made business to get potential customers to recognize its name/colours/logo/slogan to stand out from competition

• Eg. McDonalds, Starbucks, Nike

Market Structures - Summary Table