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Comingsoon…StudentWorkshops
StrongFoundations– forYear13sinNovemberandDecember2016,atVueCinemasinPortsmouth,London,Cambridge,Birmingham,Bristol,Manchester,Leeds,andGateshead–limitedticketsleft!
AlsoFlyingStart forYear12sandGradeBooster forYear13s,MarchtoMay
SessionAims
• Understandingtheconceptofacontestablemarketandsomeofitscharacteristics
• Understandwhatimpactsonlevelsofcontestability
Contestability
• 4resourcesforintroducingandtestingtheseconcepts
Resources
ContestableMarkets
isamarket structurewherethereisfreedomofentryandexit.
thelevelofcompetitioninamarket
Acontestablemarket…… Contestablemarkettheoryisnot….
ContestableMarkets
isamarket structurewherethereisfreedomofentryandexit.
Acontestablemarket……
Thebehaviour offirmsisdeterminedbythepotential forcompetition.
ContestableMarkets
Perfectlycontestable
Zerocontestability
Marketsoperatemorelikeaperfectly
competitivemarket
ContestableMarkets
Perfectlycontestable
Zerocontestability
Highstreetbanks Smartphone CityWalking
toursFastfoodrestaurant
Streamingvideos
SunkCosts
A-G H-N O-S T-Z
Barrierstoexit- SunkCosts
Sunkcostscannotberecoveredifabusinessdecidestoleaveanindustry.Sunkcostsincludeassetwrite-offs,closurecosts(suchasredundancypay,penaltycostsonleasing)andlossofbusinessreputation.
Whattypeofsunkcostscouldexistforthefollowingbusinessesiftheyweretoleavetheindustry?
Abudgethotelchain CourierService
Doggroomingservice
Breakfastcerealmanufacturer
Lossofreputationiffirmhasother
businessconcerns
Redundancycosts
Baddebtsowedbyowner
Assetwrite-offsformachinery
Barrierstoexit- SunkCosts
Thinkofamethodthatabusinesscouldusetoreducethosesunkcosts
Lossofreputationiffirmhasother
businessconcerns
Redundancycosts
Baddebtsowedbyowner
Assetwrite-offsformachinery
Abudgethotelchain CourierService
Doggroomingservice
Breakfastcerealmanufacturer
Sellchaintoestablishedfirm
Employpeopleonfixedtermcontracts
Considerownershipstatus
Leasemachinery
SunkCosts
HitandRunEntry
HitandRunEntry
Whenabusinessentersanindustrytotakeadvantageoftemporarilysupernormalprofits
ANewMarket– theHomeAssistant
Inlate2016,bothAmazonandGoogleintroducedthelatestversionsoftheirhomeassistants– TheAmazonEchoandGoogleHome.
Botharevoiceactivatedspeakersthatusethehomewifi toanswerquestionsposed.Youcanaskforallsortsofinformationincludingweatherforecasts,trafficdetails,calendarevents.Youcanalsocontrolanyaspectofthe‘smarthome’(e.g.yourlights!)aswellasplaymusic.
HitandRunEntry
Whenabusinessentersanindustrytotakeadvantageoftemporarilysupernormalprofits
ANewMarket– theHomeAssistant
ThekeytoagoodHomeAssistantisthedevelopmentofsophisticatedsearchengines.Thisisconsideredamarketwithgreatpotentialtomakesupernormalprofits.
Task1
WhatactivitieswouldyoulikeyourHomeAssistanttoundertake?Remember,itcanonlygiveanswersinaudioformat!
HitandRunEntry
Whenabusinessentersanindustrytotakeadvantageoftemporarilysupernormalprofits
ANewMarket– theHomeAssistant
Task2
WhichotherfirmscouldpotentiallyenterthemarketforcreatingHomeAssistants?
HitandRunEntry
Whenabusinessentersanindustrytotakeadvantageoftemporarilysupernormalprofits
ANewMarket– theHomeAssistant
Task3
WhatbarrierstoentryandexitfortheHomeAssistantmarketcouldexist?
HitandRunEntry
Impactofcontestabilityonamarket
Impactofcontestabilityonamarket
Uberisation
UberTechnologiesInc aremostfamousfortheirtaxiservicewhereconsumersusetheirsmartphonestosubmitrequestsanditssoftwarefindsthenearestdriver.Thecompanyhasnowmovedintoothermarketsincludingfooddelivery,packagedeliveries,andcarpooling,aswellasawater-taxiserviceinTurkey.
Impactofcontestabilityonamarket
Uberisation
Thesuccessofthecompanyhasgivenrisetotheterm‘uberisation’– wherefirmsareusingthepowerofpeer-to-peertransactionstoreducecostsandimproveservicesforconsumers.
Impactofcontestabilityonamarket
Uberisation
Task 1: What other possible industries could see a rise in ‘peer-to-peer’ transactions, where technology allows consumers and suppliers to interact more quickly or without a third party organisation’s involvement?
Impactofcontestabilityonamarket
Uberisation
Task 2: What is the likely impact on the grocery market if Uber expands its food delivery service? How would established grocery stores respond?
Impactofcontestabilityonamarket
Levelsofcontestability
Contestabilitywithinamarketisdeterminedbyfactorsotherthanjustsunkcosts
Consumerloyalty Regulations
Accesstotechnology
forproduction
Informationforsupplier
Accesstorawmaterials
Accesstoskilledlabour
ContestabilityBoxing
ContestabilityBoxing
ContestabilityBoxing
ContestableMarkets
Perfectlycontestable
Zerocontestability
Highstreetbanks Smartphone CityWalking
toursFastfoodrestaurant
Streamingvideos
Today’sResources
§ Today’s resources will also appear on the tutor2u economicsFacebook pages and the tutor2u blog§ https://www.facebook.com/groups/edexceleconomicsteache
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AnyQuestions?
