In Economics, the relationship between a prospective seller and buyer of a product is known as demand and supply. The price of a product is directly proportional to its demand. This means that if demand for a product goes up its prices are more than likely to rise…
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Similarly if one variable falls, the other is destined too as well. Today In the modern world, the theory of demand and supply seizes more emphases of business analysts in decision making. Demand and Supply theory in the modern world of fierce competition enfolds a great deal of attention for strategic planning to achieve competitive advantage over rivals. The phrase “Demand and Supply” was first used by James Denham-Steuart in his book named “Inquiry into the Political Economy” which was published in 1767 (Steuart Denham et al, 1966).
The theory discussed above is supplemented by the characteristics of the market in which the company exits. Conventionally there are four basic types of market structures. Perfect competition: such markets have many buyers and sellers, none being able to influence prices. Oligopoly: several large sellers who have some control over the prices. Monopoly: single seller with considerable control over supply and prices. Monopsony: single buyer with considerable control over demand and prices. The company with its gaming products operates in the Oligopolistic environment. Where there are several large producers but have a tendency to dominate major markets across the globe and influence some change in prices (Sloman, 2010).
The concept of elasticity comes into play here. Elasticity is the measurement of how changing one economic variable affects the other. Elasticity of demand can be of three basic types; Price elasticity of demand – measuring the dynamics of the quantity demanded by the change in price. Income elasticity of demand – measures the dynamics of quantity demanded by changes in consumer income. Cross elasticity of demand – measures the responsiveness of quantity demanded by changes in price of another good. The concept in itself is a complete strategy. When ascertaining price of a product these elasticity’s should be kept in mind (Sloman, 2010). A detailed analysis of the Micro and Macroeconomic environment of Electronic Arts Inc is conducted below in detail, to explain the subject without obstruction. MICROECONOMIC ANALYSIS The demand and Supply theory as discussed above are amongst issues one needs to cater before planning product launch, indulging in price wars and budgeting for marketing. As the demand and supply curve has serious implications on the pricing strategies being adopted, there should be reasonable understanding of the subject matter before decisions are made. For the purpose of explaining the subject effortlessly, let’s consider the example of the world’s largest video game developer Electronic Arts, Inc. Electronic Arts (the company) is America’s largest developer, marketer, publisher and distributor of video games. The company has a well diversified portfolio of products and geographical presence all over the globe. Under such circumstances the demand and supply implications are more severe for planning purposes as different conditions will be faced by the business analyst across geographical horizons. (Electronic Arts, 2011) Demand and supply has remained unchanged and unchallenged till date. There has always been a gap in the demand and su
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(Micro & Macro Economic Analysis - Electronic Arts Coursework)
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