Economics, Demand, Supply, and Market Failure - Essay Example

Accounting Name Course Lecturer Date MicroeconomicsConcepts Microeconomics deals with persons and business decisions. It involves analyzing decisions persons and businesses make concerning resource allocation as well as prices of goods and services. Microeconomics also takes in to account the government regulations and taxes as provided by the government agencies. Microeconomics mainly focuses on demand and supply as well as other factors such as elasticity, market efficiency and market failure that determine the price levels in an economy. This report will analyse how the company has used Microeconomics aspects to maximize its production and increase its capacity to position itself in the market1. This report will also evaluate how the article has applied the Microeconomics aspects. The article has used a number of microeconomics concepts and approaches and therefore this report analysis it using bottom up approach of the company in question.The article has used many theories of demand and supply. The business is facing stiff competition from the rival firms and it must find ways of producing and increasing revenue in order to sustain its market position. This also involves looking for new ways of charging so as to increase its revenue. The focus company in the article is Sirius XM Radio; this is a communications and broadcasting company resident in Australia. It is one of the biggest radios in Australia and enjoys a good market share. Sirius XM Radiobroadcasts through radio and also through the internet. Its major competitor is Pandora Radio Company, it has significant influence ion the market. The title of the article is “2 Headwinds for Sirius XM Radio You Shouldn’t Ignore” and it focuses on Sirius XM RadioCompany. This company is in the communications and broadcasting industry. The article focuses on rate increase and competition that Sirius XM Radio is facing. It also provides a going forward look for the company on how it can increase revenue generation and maintain its status in the market. Essentially, the article relates to the following microeconomic aspects; economics, demand and supply, and market failure. EconomicConcepts/ Theories to be applied The economic concepts/theories to be applied in the analysis of this article are economics, demand and supply, and market failure. These concepts feature heavily in this article. The economic concept in this article depicts the factors affecting the decisions of Sirius XM Radio. The company has scarce resources such as fund for investment and upgrade of its systems2. The article indicates that “the majority shareholder of the company, known as liberty media, kept off the plans of the company to acquire a satellite radio provider”; this is an indication of a significant funding factor affecting the company. This concept of economics provides that such factors are constraining to the firm and they prevent growth and expansion just as the article indicate. Although it is generating enough cash flow and income margins, the costs of loyalty subscriptions are increasing at a very high rate. The company must therefore make a decision on how to increase revenue generation in order to maintain a healthy income in terms of subscriber additions and revenue3. There are new competitors in the internet radio and terrestrial radio as well. For a long time, Sirius XM Radio Company enjoyed a distinguished market freedom ion this markets without much competition. There are increasingly major new competitors venturing in to the audio market and therefore enlarging the competitive field for Sirius XM Radio Company. This is one of the major areas that Sirius XM had enjoyed a relative market share with the only competitor Pandora. On its side, Pandora has been strategically planning on how to increase its internet presence although it enjoys the highest market share in the internet playing field. It had forecasted the development of stiff competition and therefore it laid strategies for increase its presence in this market. As such, it has enjoyed and increased growth in users of 8 percent year after year. The increase has added its total users to 75.3 million. Sirius XM Radio Company has total users of 25.56 million. There is a difference of 50 million between these two companies and this is an indication of the Pandora’s implementing strategic plans to increase its market share, the plans has been very productive as it has been able to achieve acquiring half of the market share in the internet radio market. Pandora’s increase in listeners has had a positive direct effect on the listener hours as the company listeners recorded an increasing 14 percent year to year increase to 1.71 billion listeners. This is a major contrast to the Sirius XM Radio Company because competition in the various market places indicates to overcome4 the company. There are no indications of strategic planning by the company from the onset meaning that the company was satisfied with its performance in the various markets. Pandora’s growth is very bad news to Sirius Company because sit is exploiting its market share and taking away some of its customers, listeners and users in the various markets. While Pandora has had enough shares of its resources to drive the growth, Sirius had been suffering from increase in rates and payments, fierce competition, increased costs and competitive concerns5. This is a good indication of market failure. The company is facing an increase in rates; it acquires music offering from agencies and artists and, therefore, pays royalty fees for themusic. Currently, it has a churn rate of 9% but this is expected to increase due to pressure from its competitors. Increase in royalty fees will compress its margins and drive up costs. There is increase in competition from other providers of audio entertainment especially for advertisers and listeners in the select non music channels. In order to maintain its churn rate, it has to increase the royalty fees. The music royalty payments represent a significant part of the total costs6 of the company and therefore increasing them will directly lower the profit margins downwards. This is the concept of demand and supply. The demand for audio entertainment has increased; this makes the competition to increase7 as many firms venture in to the market to tap the high demand. This leads to competition for the music offerings and other entertainment attributes, their supply then surges and costs increase. The music offerings are very important for these companies in the market because they attract advertisement revenue; they help the firms to attract huge and lucrative advertisement deals. Advertisement revenue is one of the important revenue sources for the company. They pay more royalty fees in order to maintain the offerings as they as they enable the company to generate revenue through advertisements. The royalty payments together with revenue share agreements accounted for 18% of the company's total subscriptions. One of the ways that the company can ensure that the increase in rates does not affect the profit margins is to diversify8 the sources of revenue. It should not rely on few revenue sources that are dependent9 on the market offerings such as reliance on the music offerings to attract advertisements. The firm should invest in an autonomous portfolio that generates good amounts of revenue. This would not only increase the company revenue and profit margins but also sustain the healthy cash flow. This would hedge the earnings against such harsh economic conditions as it is experiencing. This is the economic concept, the economic conditions affecting the company's revenue and payments are as a result of changes in the economic conditions. The other concept in application in this article is market failure10. The demand for audio entertainment does not equate to the supply of the same by the agencies and artists. This is one of the reasons the company is experiencing increasing rates due to the market failure. There is high demand but the suppliers are holding back in order to charge higher fees. The market failure has negative impacts to the company in that the company is not able to optimise its resource allocation. While it is working hard to ensure supply of audio entertainment, it is neglecting other areas of generating revenue thereby reducing the profit margins. The company is not able to minimize the costs of input resources for generating revenue. Conclusion The company should not count on stable cash flow but should strategies to diversify the revenue sources and grow the existing ones, just like Pandora Company. Harsh economic concerns have taken a swipe to Sirius XM Radio Company, the company can use the economic recovery concepts to recover and register growth as well. This is within the company's reach. Microeconomic concepts expose the company on various fields but they also offer the way forward as well. References Baumol, William, and Alan Blinder, Microeconomics: principles and policy, Cengage Learning, 2011. 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Zhao, Chunyan, and Dan Ling, "Case Teaching Method in the Application of Microeconomics," In Engineering Education and Management, pp. 515-518, Springer Berlin Heidelberg, 2012. Read More