BUSINESS ECONOMICS 8
Theforces of demand and supply determine the market prices as well asthe quantities that the markets will clear at different prices. Thequantity supplied as well as the supplied quantity is all resultantsof the price mechanism and the determinants of the pricingstrategies. At the same time, the price and the quantity of themarket supply are determined by the costs of production (Sloman &Jones, 2011). With the dynamics of changing prices and costs,suppliers and buyers compete for favorable rates. Different buyersand sellers compete for the best prices, leading to price wars, whichbenefits some consumers and sellers while hurting others. To explorethese concepts, this paper will discuss the recent price wars in thesupermarket and the mobile phone industries.
Pricewars in the two industries
Therecent price wars in the supermarkets and the mobile industries havebeen beneficial to the consumers. In the supermarket and mobileindustries, the supply of each commodity being sold impacts on theprice as influenced by the market demand. This is because the typicalresult of the price wars in an economy is lower prices for theconsumers in the market (Sloman & Jones, 2011). The impact of theprice wars is felt in the market when there is the liberalization ofthe market and the forces of supply and demand are freelyoperational.
Theprice wars lead to reduced prices for the consumers, a benefit thatthey reap from the competition among the players. In addition, thelow prices resulting from the price wars increase the quantity theconsumers can purchase from the market with the same income they hadpreviously. Moreover, the price wars result in the introduction of avariety of goods and services of the competing players in either ofthe two industries. As a result, consumers benefit from betterproducts, high quality products and enjoyment of alternatives fromthe various products from different manufacturer (Sloman & Jones,2011). The competition introduces the micro environment that relatesto each of the industries.
Themicroenvironment for the supermarket companies involves the retailmarket and the competition with other retailers. As retailers, thesupermarkets seek to sell to the final consumers, a market functionthat attracts other small-scale retailers. The competition for thecustomers in the market sees both the retailers and supermarketsreduce their prices, among other customer-centered market strategies.As a result of similarities of strategies adopted by the retailers,the price becomes the main factor that determines the number ofcustomers each party servers. According to Sloman and Jones (2011)reduction in prices of goods by one retailer will lead to a shift ofcustomers from other sellers to the favor of the lower priced store.
Themicroenvironment for mobile phone manufacturers is similarly dynamicand dependent on the market demand and quantity supplied. Theincrease in the number of mobile phone manufacturers is informed bythe increase in the demand of the devices worldwide. As a result, theentrants have embraced innovation as a strategy of outdoing eachother. While this strategy works for the industry, every company hasa unique selling point that leads to acquisition of market positionand market share. As a result of the developments to appeal to thecustomers, the advancements become a constant where all phones appealthe market. According to Frank (2008),pricing becomes the only variable that determines the competitiveedge in the market. As a result, the players reduce prices in a bidto sell more to the ever growing demand for the mobile devices.
Inboth industries, competition among the players becomes a significantfactor of the micro-economic environment. When the demand for retail,ends in the industries is high, the returns for the players are high,and the prospects attract more entrants. The increase in the numberof players increases the supply in the market, thereby lowering theprices. The lower prices end up reducing the returns that the marketsgive the players in the industry (Sloman & Jones, 2011). For thelong run, the low returns discourage new entrants into the twoindustries and informs the exit of the current players. This leads toa leveled market where the dominant players in the industry are leftto operate.
TheReduced cost of Mobile phones
Thereduction of the cost of mobile phones is a consistent phenomenonthat is developing with the increase in the level of innovation inthe industry. This leads to a two tier effect on the market for themobile devices. The first impact is the reduction in the cost ofentry of new players into the market. As noted, the increasing demandfor the mobile phones increases the returns and attracts moreentrants. Reduction of the costs makes the competition even stiffer,forcing firms to explore the growing markets for more markets (Roger,2008). The second impact of the lowcosts is the reduction of the prices of mobile phones in the market.Consequently, the consumers in low income countries can afford themobile devices a fact that increases the ability of the players topenetrate these markets.
Apartfrom low income populations, the emerging markets have acharacteristic growth in the population. This presents graduallyincreasing market opportunities for the players in the mobile phoneindustry. As a result, the firms invest more in the production ofproducts in the developing countries.
Oneof the macroeconomic perspectives of understanding the markets formobile phones is the economicgrowth of the countries they operatein. According to Roger (2008),growth in the economy impacts on the industry in terms of the sourcesof the factors of production. The two industries are capitalintensive in terms of investments needed to start the businesses. Theproduction of mobile phones and setting up of supermarkets requires ahigh level of technological and financial capital that keepspotential competitors away. This reduces competition to only firmswith ability to compete effectively (Frank,2008). The financial ability of thesefirms makes competition in the industry more intense, leading tovolatile price wars. Therefore, growth of the economy provides morecapital for the players in the two industries to invest in thecompetitive businesses.
Growthof the economy involves an increase in the incomes of the countriesand consumers in the emerging markets. As a result, the macroeconomicelements of inflation and unemployment come into play. According toSloman and Jones (2011) the increase in incomes of consumers can onlyimpact on an industry if the value of money is held constant therebyreflecting on the real income of consumers. At the same time, theemployment levels of the populations in these markets reflect on theamount of disposable income that people have.
Ifthe incomes of people are higher, and the inflation rates areconstant, mobile phone firms will face favorable markets since theywill sell more devices. This market rise will be possible because thereal incomes of consumers will be on the rise due to the growth inthe economies of the emerging markets. Therefore, an increase in theGDP of a country will lead to increased markets for mobile phones iftheir inflation and value of the currency will be stable. Thisintroduces the need for a stable currency in terms of exchange rates.This is because the prices of the imported mobile devices willincrease with a reduction in the exchange rates.
Asthe populations increase, the unemployment levels should also be atfavorable levels. According to Sloman and Jones (2011), the emergingare characterized by increasing populations and increase in the GDP.However, the levels of unemployment impacts heavily on the amount ofdisposable income that people have. When unemployment is high, mobilephone companies sell less and face unfavorable markets. This isfurther aggregated by the fact that mobile phones are secondaryproducts that are only purchased is the primary needs are satisfied.Consequently, the performance of the players in the industry dependson the macroeconomic elements of the emerging markets.
Thecompetition in the market by the players in the telephony andsupermarket industries involves price wars. The price wars benefitconsumers in both industries as firms seek to outdo each other interms of pricing strategies. At the same time, the reduction in thecosts of mobile phones allows new entrants into the industry.Moreover, the reduced costs enable affordability by consumers,especially in the emerging markets. As a result, consumptionincreases and market expands for the companies in the industry. Thismakes the industry favorable for both the companies and the consumersin the emerging populations.
Frank,R. (2008). Microeconomicsand Behavior,7th Ed.New York: McGraw-Hill.
Roger,A. (2008). Economics.New York: Cengage Learning
Sloman,J., & Jones, E. (2011). Economicsand the Business Environment, 3rdEdition.UpperSaddle River, New Jersey: FinancialTimes/ Prentice Hall