Hello, I’m glad to present my article. As a professional writer, I constantly write lots of blogs and topics on a variety of topics and welcome you to read many more of them on my website https://essay-buy.net/

Enjoy your reading!

In any organization or business entity, the manager or the head is the most important person who makes the key decisions. For instance, the chief executive officer in any company is tasked with the responsibility of maximizing profit. In order to achieve this goal, there should be established coordination in an organization that enables the CEO to give orders and direct the production manager on minimizing production cost. Managers and other senior staff in an organization need to have basic background information on managerial economics. It helps them to make a cost-effective decision when dealing with scarce resources (class notes). Importantly, managerial economics puts managers in a position where they can in the most possible efficient way direct the in place scarce resources to achieve the organizational goals. This paper analizes the concept of managerial economics by examining two of its covered topics, namely pricing with market power and oligopoly. It would enable in the understanding of how managerial economics arises. Finally, the articles will be observed in order to reveal how managerial economics concepts taught in learning institutions are applicable in practice.

Oligopoly

The managers who successfully drive their companies or enterprises forward have a good understanding of the market structures. Oligopoly is one of the numerous types of market structures. It is the general market category describing markets with a small number of operational firms (Fudenberg & Tirole, 2013). It is worth noting that oligopoly makes it impossible to have a single model thus capturing the numerous implications that a firm’s behavior can have within the market. Moreover, the fates of firms operating in this market are interdependent meaning that the actions of one firm in the market affect the others. It means that the profits made by a particular enterprise are not only dependent on its own performance but also on the competitors’ actions. One of the manager’s expectations in this market is that one should integrate rival perspectives when analyzing the existing competitive situation. Managers are required to put themselves in their competitor's place in the event they seek to achieve optimal decision making.

Analyzing the concentration level is helpful in the measuring of a market oligopolistic tendency. 8-firm and 4-firm are common concentration ratios that can be used in the assessment. The given ratio shows the market share of 8 and 4 largest market firms (Fudenberg & Tirole, 2013). More importantly, the concentration rations show what the largest firm controls in a particular possess. In addition, the ratios indicate the industry’s oligopolistic degree. For instance, an industry with a 100% 4-firm concentration ratio means that its entire market is under the control of 4 firms; this feature makes it automatically be classified as an oligopolistic market structure.

Different models exist when dealing with an oligopoly market, including the Sweezy model. According to it, the existing businesses, which are few, produce differentiated products. In addition, the belief amongst the firms is that the rivals can trigger a price reduction in the commodities through cutting their price. However, the rivals cannot influence an increase in price charged by raising the prices of their respective products. An important aspect to note about the model is its price rigidity description. A manager heading a company operating in this market structure should be aware that the competing firms always show reluctance to change their prices regardless of the changes in demands and costs.

The issue of cartels is at the heart of the oligopoly market structure, and this information is helpful to future managers operating in such a field. The nature of the market is a carter forming an incentive to the oligopolistic firms (class notes). Through the cartels, the firms are able to collude in the setting of quantities and prices in order to have profit increase. Typically, each participating member in the cartel agrees to reduce the output level it normally produces when acting independently. However, these created cartels might fall for different reasons, in particular the lack of enough market control that would enable them to raise their prices. Internally, cartels can fail in case some of the members get the incentives to cheat through secretly making more production contrary to the agreement.

The issue of cartels in an oligopoly market continues to make headlines in the news that underlines the concept’s application in the real world. Currently, the Organization of the Petroleum Exporting Countries (OPEC) has been one of the cartels in the oligopolistic oil market. However, its actions have been a source of public debate amongst countries with the main grievance being the high prices it sets for its oil (Meredith, 2018). The importance of this discussion is shown by the recent efforts by the American government and other global leading countries about the OPEC cartel.

The issue has been investigated in Sam Meredith’s article for CNBC issued in November 2018. The article deals with the G-20 meeting where the 20 largest world economies tried to establish a consensus on some of the key global issues, including the oil prices. There has been endless criticism of the OPEC cartel for its actions of setting high oil prices. To deal with the cartel, President Donald Trump through the U.S. Department of Justice is exploring developing an antitrust legislation that would allow the American government to reduce significantly the power of the OPEC cartel. Saudi Arabia, an OPEC kingpin, has been on the forefront in urging the oil cartel to trim its output in order to deal with oversupply concerns (Meredith, 2018). The oversupply is resulted by the high prices that the OPEC cartel is charging for its oil.

In his article, Meredith demonstrates the applicability of the oligopoly concept in today’s world. The article is highly informative and enjoying to read. One of the notions that become evident from the entry is that it is a complicated task for the countries to enter the oil industry due to its scarcity as it is a natural resource. The information in the article relates to the class notes on the cartels found in an oligopoly market. In a related industry, the firms can easily form cartels, which they use to increase the prices of the commodities they are charging (Meredith, 2018). The article is a good example of the way the cartel oligopoly concept is being applied in the real world.

Pricing with Market Power

A great number of the successful businesses in the world have achieved the goal in pricing the products and services they offer people. Pricing is a sensitive element in business. Aspiring managers should be aware of the fact that in some firms operating in markets, a uniform price charge on all consumers would enhance profits. Disney World’s Mickey Mouse Rides is a perfect example of how such a market operates.

Knowledge of price discrimination is vital for an individual who seeks to understand pricing and the market power. Price discrimination occurs when firms charge consumers different prices for the same service or good (Smith, 2012). A good case study is the way airlines offer discount fare prices to people going on vacation but charge full fares to persons traveling for business purposes. Therefore, it means that a firm must either possess market power or be in a position to identify the groups with different price sensitivities. It would require the manager be able to recognize the different consumer demands. In Disney’s case, the company knows its local residents and tourists. Interestingly, Disneyland makes this distinction through people’s willingness to use and pay.

Several pricing strategies exist with one of them being bundling, and firms with market power often pursue this strategy (Smith, 2012). Notably, bundling involves the sale of multiple services or goods for a single price. Managers should be aware that the company stands to gain more profits for exploiting the differences in customer willingness to pay. There are two forms of bundling, namely pure and mixed. The former is the offering package deals to consumers; for example, the cable companies selling the Internet bundles. In mixed bundling, the goods are available either separately or as a package.

As aforementioned, the pricing strategy adopted by a firm plays a crucial role in its decline or success. Some of the leading global companies such as Tesla have had their products perform poorly in terms of sales due to the poor pricing strategy. David Meyer examines Tesla’s flop in the Chinese market in his article for the Fortune Magazine. According to Meyer, Tesla made a wrong decision after it raised prices of its Model X and Model S in China. It was on the backdrop on the Chinese and American trade war. The pricing strategy, however, has triggered a decline in the demand of the two models amongst its Chinese consumers. The realization of the poor sales resulted in the fact that Tesla made a between 12% cut on the prices of the models (Meyer, 2018). The percentage can go as higher as 26%. The problem is that China has a number of cheaper options for electric vehicles that consumers love. Moreover, traditional car manufacturers such as Nissan and Audi have also ventured into electric vehicles manufacturing. Tesla no longer has the price dictation power that it had previously as the pioneer of this sector. The measure of price reduction has been taken to ensure that the company can recapture its Chinese consumers even if it means that it will make a less profit margin. Meyer’s article is a clear indication of the applicability of pricing strategy in the real world.

Reading Meyer’s article has been a revelation regarding the sensitivity of the pricing strategies adopted by firms. I believe that Meyer seeks to bring out the critical aspect of managerial decisions regarding pricing. According to the article, Tesla is making losses due to the misguided decision on the pricing strategy. It is worth mentioning that reading the article was easy as I related it with the class topic of profit maximization (class notes). With this background information, I was able to understand how Tesla made the wrong decision when increasing the prices of the two car models. The company failed to estimate the effect that the decision would have on the cars.

Conclusion

People in charge of firms should have a basic knowledge of managerial economics. Such knowledge enables them to fulfill their task of profit maximization in the organizations. Understanding the different markets and their respective nature is important in managerial economics. A manager needs to be aware of the firm's operational market and its characteristics. These features guide the companies on aspects such as pricing. Markets and pricing are at the center of managerial economics. Recently, Tesla has announced that it was lowering the prices for its brands in China that brings the applicability of the managerial economic concept in today’s world.