Markets and the EU - Case Study Example

Markets and the EU Table of Contents The Advantages of the Perfect Competition Structure of the Market 4 The Disadvantages of the Perfect CompetitionMarket Structure 4 The Advantages of Imperfect Competition 5 5 The Disadvantages of Imperfect Competition 5 The Advantages of Monopoly 5 The Disadvantages of Monopoly 6 The Advantages of Oligopoly 6 6 The Disadvantages of Oligopoly 6 Role of the Competition Commission 7 Role of Regulatory Bodies 7 Competitive Strategies of Organisation 8 Product Strategy 9 Price Strategy 10 Promotion Strategy 10 Place Strategy 11 International Trade 12 Advantages of International Trade 12 Disadvantages of International Trade 14 Time consuming Returns 15 Benefits for Tesco if Britain joins the European Union 15 The Disadvantages for Tesco If Britain Joins the European Union 15 UK Entry into the European Monetary Union (For) 17 17 UK Entry into the European Monetary Union (Against) 18 References 19 The following is a report for Peter Brown, the chief executive of Techtoday.com. All economic activities are centred around markets. The term ‘Market’ refers to a collection of buyers and sellers. They agree to buy something on certain agreed price. Generally, in an economic system, there are four important market structures. They are Perfect Competition, Imperfect Competition, Monopoly and Oligopoly. The merits and demerits of each of these market structures are discussed below. Perfect Competition – Perfect Competition is a kind of market structure where there is free entry and free exit of firms. The Advantages of the Perfect Competition Structure of the Market In perfect competition there is fierce competition among the firms. Consumers benefits directly from it. Due to immense competition, there is best allocation of resources. Consumers stand to gain the most in a perfect competitive structure. No firm is in a position to influence the price. Therefore, there are less chances of price manipulation. The Disadvantages of the Perfect Competition Market Structure Perfect competition is an ideal state. It rarely exists in reality. Output of a firm is less compared to the total market demand (Ahuja, 1997). The Advantages of Imperfect Competition In imperfect competition, firms fix price that is more than the normal price. This will make the cost structure difficult for most firms to enter the market. As a result, only a few firms will exist in the market. This will make the market efficient. Imperfect competition helps in enjoying a higher standard of living due to innovation and Research and Development (Ahuja, 1997). The Disadvantages of Imperfect Competition The biggest demerit of imperfect competition is that the market is imperfect. This means a small number of firms control the market and influence the price. In order to distinguish their products from one another, firms spend heavily on marketing and selling. This expenditure is at times a waste (Ahuja, 1997). The Advantages of Monopoly Monopoly is at times acceptable if it happens to be a natural monopoly. Monopoly provides incentive to innovation and research and development. Monopolies help to reap the benefits of economies of scale (Ahuja, 1997). The Disadvantages of Monopoly This is the market structure where the consumers are exploited to the maximum. There are chances of market inefficiency (Ahuja, 1997). The Advantages of Oligopoly Most firms in the real world belong to the oligopoly market structure. They contribute to the development of the nation and its economy by providing huge employment opportunities. Since the number of firms in the industry is small, they make the market efficient and competitive (Ahuja, 1997). The Disadvantages of Oligopoly In Oligopoly market the barriers are entry is high. Therefore entry is difficult. Oligopoly market structures often lead to the development of cartels. Cartels are often detrimental to consumer’s interests (Ahuja, 1997). Role of the Competition Commission In Britain, the Competition Commission is a separate body, detached from the legislative and the executive. Its primary function is to conduct enquiry in matters relating to different business aspects like merger, acquisition. It’s the custodian of ensuring free competition (Competition Commission, n.d.). Role of Regulatory Bodies The Regulatory Bodies are very important in the financial landscape of Britain. There are various organisations which are under the Finance and Auditing (UK). A few important organisations are the Financial Services Authority, Financial Ombudsman Service, Public Trust Office, National Audit Office and the Bona Vacantia. The Financial Services Authority is not a government organisation. It has been formed by certain companies. Its function is to regulate the working of the industries in the financial services in Britain. The Financial Ombudsman Service helps to settle any problem that a person may have in financial matters. They can relate to matters of Banking, Credit Card, and Insurance Policies. The function of the Public Trust Office is to aid people in matters relating to money and wealth. The Audit Commission is distinct regulatory body. It is a watchdog for money spent on public expenditure. The Bona Vacantia takes care of the property of people who passes away without any heirs. The National Audit Office oversees the spending for public welfare in place of the parliament (Personal Financial Tips, 2010). Competitive Strategies of Organisation Competitive strategies are the approaches that a business takes to deal with competition. A firm can formulate its competitive strategies on different levels. One level of strategy formulation can be on the basic level like cost, product differentiation, etc. Another level of formulating competitive strategies could be on the level of functionalities. These functionalities could be Marketing, Human Resource, and Operations. The basic reason for firms adopting competitive strategies is to derive competitive advantage. Analysis of the Competitive Strategy of an organisation can be recognised by employing 4P’s of Marketing: The 4P’s of Marketing are Product, Price, Place and Promotion. These are also known as the marketing mix. Product Strategy Product strategy is employed by an organisation to differentiate itself from its competitors. Instead of selling its merchandises through the numerous middle-men, an organisation can employ a diversified strategy to sell its products for example using the internet. Any customer can place his or her order online and the products will be made available to him or her. There are many advantages of this strategy. First and foremost, an organisation can afford to sell its products at a competitive rate by eliminating the cost of the intermediaries. Moreover, the company can also save its storage and ordering costs. An organisation from time to time brings in innovations in their supply chain that brings in better choices to the consumers in terms of products. Product choices have also increased for the consumers as an organisation can at times increase the product range and the increase of assortment can result in an increase in the consumer segment (Tesco, 2008). Price Strategy Price strategy, in an organisation is devised in such a manner that it provides maximum satisfaction to the customers after they have bought a product. An organisation tries to provide the consumers a feel that they are getting value for their spent money. Prices are generally devised for individual products. However, there are product lines and all of them are combined to arrive at the final cost. The ultimate objective is to make the customers feel that they are getting their penny’s worth for the merchandise they buy (Competition Commission, 2000). Promotion Strategy Promotional activity such as in-store decoration is a significant process of product promotion. The purpose of doing this is to make their stores highly attractive. Promotional activities are devised in such a way that it provides a unique shopping experience to the shoppers. Moreover, at times there are innovative scheme employed by an organisation to promote their products. For example, Tesco, a retail organisation in the UK, promote their offered assortment by using scheme called the “Club Card” scheme that is designed to encourage shoppers to visit their shops more frequently. Through a point system they reward the loyal shoppers (Macmillan, 2010). Place Strategy Place i.e. location plays a vital role in devising competitive strategy for an organisation. A prime location for a retail store can aid them in gaining competitive advantage from their competitors. Along with it logistics and distribution also plays a vital role. For example, the distribution strategy of Tesco can be observed. It is a well developed strategy. Through an efficient supply chain management system, it manages its distribution effectively. It makes use of technology for online order and delivery. The following report is for Paul Hawkins, Line Manager. International Trade International Trade in simple language means trade outside the boundary of a nation. There are lots of factors that make international trade imperative. They are comparative cost, saturation of domestic market, and cheap factors of production. Advantages of International Trade Improvement in Competition International trade enhances competition in the domestic market. The presence of many market players will make the market competitive. As a result, the domestic market in order to compete globally will have to improve its competitiveness. Business Gains Business stands to gain from international trade. It gets an opportunity to increase its volume. As a result it gets an opportunity to increase its sales and profits. Access to Improved Technology The premise of international trade is exchange. Through exchange a technologically inferior country can have access to superior technology. As a result, the country can improve its productive efficiency. Helps To Reach Overseas Markets International trade can help business of a domestic nation. When the domestic markets become saturated, a businessman looks for expansion. Through international trade, there can be access to different foreign markets. Therefore, one can easily sell his products overseas when the domestic market becomes saturated. Helps To Gain Share in the World Market A country can easily gain a share in the world market through international trade. International trade gives an opportunity to every nation of the world to participate in global trade and commerce. Disadvantages of International Trade Exploitation and Domination In practice, international trade is far from equality. The present day international trade is dominated by the United States of America, Japan and a few developed countries from the west. These countries try to exploit the markets of the developing countries through unfair trade regulations and tariffs. Therefore, international trade sometimes may not be beneficial to a developing nation. Rules and Regulations Participation in international trade requires compliance with a plethora of rules and regulations. This increases the legal costs of a firm. Increase in Marketing Expenditure To sell goods in the global markets, a firm has to develop products well suited for the foreign market. Even the marketing strategy has to be revamped. As a result the marketing expenditure of a firm increases. Time consuming Returns Time consuming returns are not immediate from international trade. At times a project takes a long time to yield positive returns. Problems in Remittance At times financial exchange becomes difficult. Due to the differences in the financial systems of various nations, remittance becomes a problem (My Own Business, 2010). Benefits for Tesco if Britain joins the European Union Tesco can expand its business beyond Britain. This is one of its core objectives (European Foundation for the Improvement of Living and Working Conditions, 2007). It can take advantage of the low cost of the factors of production in certain overseas economy. It can reduce cost from economies of scale. The Disadvantages for Tesco If Britain Joins the European Union Tesco will have to comply with different kinds of rules and regulations. This will make the cost of doing business expensive. Tesco will be exposed to competition from other retailers in Europe. Tesco enjoys home advantage in Britain. It may not enjoy so in other European markets. UK Entry into the European Monetary Union (For) Britain should join the European Monetary Union for the following reasons. Joining the European Monetary Union (Euro) is not a matter of choice for Britain but a necessity. Britain cannot think of a single Europe with the Euro. Today, Europe is a borderless nation. By staying away from Euro, Britain will be isolated from the rest of Europe. The British Pound no longer enjoys the same respect as it did when it first came into circulation. Persisting with a currency that no longer enjoys global prestige makes no sense for Britain. On the contrary, by joining Euro Britain can reap the myriad benefits of single European currency. The European Monetary Union is a philosophy. The core philosophy of Euro is a single Europe. The ultimate objective is European integration. Joining the Euro will provide the Britishers with the benefits of free movement to any country, liberty and freedom of expression. This means the political and civil liberties of the English people shall be fully protected. Therefore, even if it appears risky to join the Euro, the long run advantages cannot be ruled out. Joining the Euro will provide a boost to the British tourism. The British people will get plenty of opportunities to travel to other European nations. Needless to say, tourism will provide a valuable source of earning foreign exchange. UK Entry into the European Monetary Union (Against) Britain should not join the European Monetary Union for quite a few reasons. By joining the Euro, Britain will lose its financial independence. It has to abide by the decisions of other European nations. Hence, Britain will lose its independent voice in financial matters. A host of economic problems will descend upon Britain if it decides to join the Euro. First and foremost, the economy will lose its insulation. It will be affected by economic problems like currency fluctuations, unemployment which may originate from other European nations. De-monetisation will fuel inflation and lead to high price rise in the British economy. Britain will also lose its national identity if it joins the Euro. British people will have to obey rules and regulations which will be set outside Britain. The British people will face socio-cultural problems. Language will become a major area of the problem (BBC News, 2003). References Ahuja, H. L., 1997. Modern Microeconomics. Sultan Chand and Sons. BBC News, 2003. Should Britain join the Euro? News. [Online] Available at: http://news.bbc.co.uk/2/hi/talking_point/2968540.stm [Accessed December 10, 2010]. Competition Commission, No Date. Welcome to the Competition Commission. Home. [Online] Available at: http://www.competition-commission.org.uk/ [Accessed December 10, 2010]. Competition Commission, 2000. Company Pricing Policies. Home. [Online] Available at: http://www.competition-commission.org.uk/rep_pub/reports/2000/fulltext/446a7.1.pdf [Accessed December 10, 2010]. European Foundation for the Improvement of Living and Working Conditions, 2007. European Commerce studies: Tesco Plc. EMCC Case Studies. [Online] Available at: http://www.eurofound.europa.eu/pubdocs/2007/1063/en/1/ef071063en.pdf [Accessed December 10, 2010]. Macmillan, P., 2010. Tesco Stores Limited. Archive. [Online] Available at: https://secure.palgrave-journals.com/dddmp/journal/v9/n2/full/4350078a.html [Accessed December 10, 2010]. My Own Business, 2010. Advantages and Disadvantages of International Trade. Home. [Online] Available at: http://www.myownbusiness.org/s13/#4 [Accessed December 10, 2010]. Personal Financial Tips, 2010. UK Finance and Auditing Regulatory Bodies. Home. [Online] Available at: http://www.paramicel.com/?p=105 [Accessed December 10, 2010]. Tesco, 2008. How the Consumer Is Benefiting. Talking Tesco: How we compete. [Online] Available at: http://www.tesco.com/talkingtesco/oldDefault.asp [Accessed December 10, 2010]. Read More