Business Economics and Competition - Coursework Example

Business Economics - work assignment Introduction Competition is a major catalyst in business operations. Business firms use different mechanisms to survive in competitive markets. One of the strategies adopted by firms in competitive market environments is the price wars. Price war refers to the practice of a business entity lowering the price of its products or services below that of the competitors. Price war may be used to serve two purposes; to increase revenue proceeds in the short run or a long-term plan to increase the market share (Zawada, Baker & Marn, 2013). Price wars are associated with low profits and poor financial performance of business enterprises. The issue of price wars can be solved through strategic price management and liaising with competitors in price determination. Price wars benefit the consumers but adversely affect the business entities. Effects of price wars in supermarkets The recent price wars staged by the supermarkets and mobile phone dealers have been of great benefit to the consumers. Price wars led to a reduction of prices for both products and services. With reduced prices, the consumer can satisfy more needs than when the prices were high at the same level of income. A reduction in price increases the value for money and therefore the consumer can attain the optimal level of satisfaction at a low cost. Money is usually a scarce resource and people struggle to ensure that they save as much as possible. Price reduction due to the price wars avail some money for saving to the consumer. The consumer can opt to save the excess income or invest in productive ventures. Generally, price wars boost the consumers’ financial position since satisfaction is attained at a low cost. Price wars discourage entry of new supermarkets in the industry. In most cases, newly established supermarkets charge lower prices on their product than the existing ones. The new firms employ the strategy of charging lower prices in order to boost sales and promote consumer loyalty. Entry of new firms in the industry increases the supply of commodities in the market. The market forces of demand and supply forces the firms to reduce prices up to the market equilibrium. The market equilibrium is achieved when supply and demand are at the same level in the market. Firms must operate at equilibrium in order to gain optimum profits. When supply exceeds demand, the firms face the danger of suffering losses. Additionally, the consumer is presented with a variety of commodities to make a choice. Price wars lead to exit of some firms from the industry. Newly established firms are forced out of the industry by the already established brands. In addition, entry of new firms in the industry is discouraged since proceeds from sales are greatly reduced. In reality, price wars among the supermarkets have led to the closure of some supermarkets and discourage entry of new ones in the market. In essence, price wars aid in reducing unnecessary competition in the market. Firms that survive the challenge of price wars end up making good returns in the long run. Some economists argue that price wars assist in moderating the market competition and molding the rate of returns for firms. Price wars enhance provision of quality products and services to consumers. Firms are compelled to improve the quality of goods and services in order to survive in markets where price war is used as a competition tool. Price wars force firms to concentrate on improving service delivery and production quality in order to emerge unique from others. The major beneficiaries of such strategies are the consumers since they access top quality services and products. For instance, some supermarkets offer free transport services for customers. Other supermarkets give attractive trade discounts and gifts to uphold customers’ loyalty and boost sales. The strategies employed by the supermarkets to survive in a competitive market are advantageous to the consumers. Essentially, the use of price wars as the competition tool has helped in improving the quality of life and lowering the living cost for consumers. Low cost of acquiring mobile phones. The advancement in technology has increased the competition in the mobile phones industry. Many firms producing different brands of mobile phones have joined the industry. As a result, the supply of mobile phones in the market has exceeded demand. As a result, the cost of buying phones has reduced. Consequently, the number of people with the ability to purchase a mobile phone has risen. A recent research showed that, at least one member in almost every household in the world have access to a mobile phone. The outlets selling mobile phones have increased in number. The current prices of mobile phones are lower compared to a decade ago. In the past years, possessing a phone was a challenge since the prices only favored the rich. The cost of mobile phones keeps reducing every year, thereby increasing their affordability. Many economies across the world have experienced an improvement in the growth of GDP. An Increase in the GDP shows that the people’s purchasing power has increased (Baines, Fill & Page, 2011). In this regard, the ability of people to enjoy luxurious lifestyle increase. In addition, the business environment in many countries encourages investment in the mobile phone sector. The economic view of the increased investment in the mobile phone sector is that, there will be an increased competition in the market. Consequently, supply will be in excess and firms will be forced to charge cheap prices for the mobile phone products to reach the market equilibrium. Inflation is a continuous general rise in prices over a period. Several nations of the world have been hit by the inflation problem. Inflation has the effect of reducing people’s purchasing power and increasing the production cost. Increase in production cost pressures the producers to charge relatively high prices for the finished good in order to earn some profits. In this regard, people are forced to go for commodities selling at low prices. Some mobile phones manufacturers and dealers have seized the inflation opportunity to expand the market. Some mobile phone producing companies have embarked on producing phones that are less expensive than those present in the market. Therefore, low-income earners can afford buying phones. In essence, majority of people in the world are poor and can only afford simple lifestyles. Availability of cheap phones in the market has made it possible for the poor people to enjoy the advancements in the modern technology. The fall in the cost of acquiring mobile phones has boosted business and economic development. Use of mobile phones is among the fastest channels of communication. Technology has brought diversity in the business environment. People in various economic sectors have embraced the new technology in conducting daily operations. Establishment of small and middle-income business enterprises is among the emerging markets for the mobile phones. The application of modern technology in conducting business transactions create the need for every person to possess a mobile phones. Mobile phones are very effective for urgent calls since they are portable and have good network coverage. Mobile phones aid in eliminating boredom in the workplace. Phones facilitate easy internet access and entertainment, therefore, reliefs people the tiredness and boredom in the workplaces. Securing employment in the modern times is a bit technical. Many people have the skills, but the job opportunities are limited. For instance, thousands of students graduate from colleges and universities every year to join the job market. Unfortunately, the available job opportunities cannot accommodate all the graduate. In response to high levels of unemployment, many people have turned into self-employment. Self-employed people have formed a unique subset of the total population that forms an emerging market for mobile phones. Research has shown that the majority of self-employed people are in the middle-income bracket. A critical analysis of the market composition shows that the population of mobile phone users will continue increasing since people’s lifestyles and economic status are not static. In addition, the number of people willing and able to buy mobile phones increases from time to time due to the advancement in education and modern technology. Conclusion It is apparent that the business environment has become very competitive in past few decades. Almost all industries are overcrowded with firms. The business firms use various mechanisms in order to survive in a competitive market environment. Price war has emerged as the most common strategy used by firms to survive in competitive markets. Prices wars are beneficial to consumers and harmful to business enterprises. Essentially, price wars reduce the profits accrued from the sale of produced goods or services. Price wars have led to the closure of many business entities and hindered entry of new firms in the market. Firms should avoid price wars at all cost and devise healthy competition strategy. Price wars are a disadvantage to both large and small business organisations. In summary, business enterprises should practice fair and healthy competition in order to increase profits and give room for expansion. Reference list: Zawada, C. C., Baker, W. L., & Marn, M. V. (2013). The price advantage. Hoboken, N.J: Wiley. Baines, P., Fill, C., & Page, K. (2011). Marketing. Oxford: Oxford University Press. Beise, M. (2001). Lead markets: Country-specific success factors of the global diffusion of innovations; with 8 tables. Heidelberg [u.a].: Physika-Verl. Read More