Strategies Beyond the Market

Introduction

How can a Company earn Superior Returns? What is a perfect market? What do we mean by Market failure?

Market Failure

Market failure is a concept within economic theory wherein the freely functioning markets fail to deliver an efficient or optimal allocation of resources. The market failure concept was used only as a normative concept to dene appropriate situations for government intervention in markets. Market failure exists when the competitive outcome of markets is not efficient from the point of view of the economy as a whole.

Sources of Superior Returns

Attractive Industry 1.Buyer power 2.Supplier power 3.Barrier to entry 4.The threat of substitutes 5.Rivaly A firms Unique bundle of resources and capabilities Difficulties in acquiring and transmitting Knowledge within and across companies.

Government and Social group interventions

The economic rationale for government intervention Correction for market failure/loss of economic efficiency Desire for greater degree of equity in the distribution of income and wealth.

Guidelines from Strategies beyond market

Recognize market failures and resulting opportunities for strategic success. Predict how governments and social groups will respond to market failures. Learn how to formulate strategies that build on these responses to improve your companys financial performance.

Causes of Market Failure

Market Power Transactions Costs Externalities Information Imperfections

Market Power

Market power is the ability of a firm to alter the market price of a good or service. Market power is the presence of fixed costs because they limit the number of products that companies can offer in a market of a given size. It has the presence of Production economies, which might limit the number of competitors .

Abuse Of Monopoly Position

Imperfect competition can lead to a misallocation of resources Monopoly prices will normally be above those in competitive markets - loss of consumer surplus -output is below the competitive equilibrium level -loss of static (allocative and productive) efficiency Monopolists may waste scarce resources

Transaction Costs
Transaction cost is a cost incurred in making an economic exchange (the cost of participating in a market). Kinds Of Transaction Costs - Search and information costs - Bargaining costs - Policing and enforcement costs

Tools to control Market Failure of Information goods

Four Principal tools to prevent the failure of market for information goods and to protect Government intellectual property are 1.Patent 2.Copyright 3.Trademark 4. Trade secret

Externalities

Externalities effects arising from the production and or consumption of goods and services for which no appropriate compensation is paid. Externalities create a divergence between the private and social costs of production.

Negative externalities Over production of goods where the social cost>private cost Over consumption of de-merit goods where social benefit<private benefit

Information Imperfect

Information relevant to the sale or purchase of products or services that is privately held by one of the parties to the transaction. Adverse Selection.

Types of Market failures

Failures due to Production or Exchange Primitives Company Induced Failures Government Induced Failure

Market Strategies and Strategies Beyond Markets

The Importance of Non Customers Rivals cost, Willingness to Pay and Price Outcomes, Processes and Intensions

SWOT Analysis
Strengths: Weakness: Ability to spot Market Failures Inability to develop a product that can dominate the market. Ability to strategize and Inability to adapt to changes capitalize on Market Failure

Opportunities: Untapped Markets like rural Markets. Markets where there is Monopoly.

Threats: Government Regulations Pressure from Social Groups Threat from competitors

Measures to control Market Failures

Government should look for Market failures Social Groups also play a vital role in overcoming market failures. Economists and technical experts should be appointed by the government to deal with market failures. Ensure that there is no monopoly or unfair trade practices followed by Companies Encouragement should be given to other industries to come up with close substitutes to avoid monopoly or market failure.

Government and Social group interventions

Several forms of government interventions are possible to correct for perceived market failure 1. Command and control techniques (including regulation) 2. Government subsidy and other forms of financial assistance including research grant and tax allowances/tax exemptions) 3. Taxation (including indirect taxes designed to control pollution) 4. Policies to increase competition and reduce the immobility of factors of production 5. Provision and finance of public and merit goods 6. Introduction/expansion of market based incentives to change both consumer and producer behavior.

Recommendations

Spotting Opportunities early. Exploiting the opportunities. Predicting government and social response Analyzing the response and adapting to the Change. Explore Markets where there is a monopoly.

Conclusion

Market Failure Opportunities arising from Market Failure Factors to Be considered while formulating strategies. Be ready to change strategy and adapt to changes in the environment.

Thank You