Essay Example on Competition Market and pricing structure

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With each competitor that enters the market there is less space available in the marketplace When competing supply is present each competitor needs to sell half of the remaining market Myatt 2017 Specifically the room remaining room left for me for a supplier is Opponent Qmax Myatt 2017 p 6 Performance as a percentage of the gross market value Smax shows that the more competitors the less profit between competitors however consumer surplus increases assuming fixed costs are equal The Bertrand model structure would see competitors due to being homogenous focus on similar price setting with the outcome being that they will share half of the demand It is also noted that that the product is likely to be homogenous Besanko Braeutigam 2011 553 If the competitors have a bigger focus on price this would drive the price down to marginal cost By each competitor maximising its own profit and not responding to competitor output the industry profit may not be maximised In comparison in a Cournot equilibrium as the number of competitors increase the elasticity of demand increases and price falls However Besanko Braeutigam 2011 notes that the competitor price is reached only a to specific limit before profits contract and consumer surplus has reached its peak 



How the number of players are determined in a market can also be related to Cournot equilibrium where each competitors output is a best response to the other competitors output That is as more competitors are introduced into the market the demand curve for all competitors would shift inwards due to the extra supply offered by the new competitors Chui 2016 This can also be seen as a central feature of oligopoly markets where there is competitive interdependence Therefore the decisions of every competitor significantly affect the profits of other competitors Besanko Braeutigam 2011 p 533 To determine the likelihood of too many or too little competition it really depends on if the market is not at equilibrium In Adam s Smith 1759 concept of the invisible hand that no matter the number of competitors that may enter the market market forces will move the quantity supplied back to equilibrium Economic Times 2018 Welker 2018 notes that the consumer would be better off if more of the product was available so the potential is to have more competitors suppliers enter the market so that consumers demand more bringing the market back to equilibrium

Welker 2018 At equilibrium the quantity supplied matches the quantity demanded minimising excesses and shortages in the competition When this is achieved efficiency of the market is at its peak One of the best examples of changing intensity in competition is a product synonymous with the Dubai economy The Shopping Mall In the year 2000 only four malls existed to meet the demand of the population By 2017 US 4 billion in mall projects have been awarded and retail sales exceeded US 73 billion leading to media reporting an over saturation of malls in Dubai UAE may already be oversaturated with sales stagnating or declining at 64 percent of businesses surveyed last fall by KPMG Norwak 2017 Retail and wholesale trade in the UAE is an important sector accounting for more than 11 of the country's Gross Domestic Product GDP and close to 30 of Dubai's GDP There has been significant intensity of competition in this market it can be seen that when more malls were developed increased competition the demand curve became steeper leading to increased consumer surplus 



However the question then lies whether the increased number of malls is affecting profit and consumer surplus For the purposes of this case study the Dubai market of Retail Malls is defined as an oligopoly as there is high barriers to entry with strong pricing power Malls are also a good example where each competitor is interdependent Besanko Braeutigam 2011 p 533 Good examples of this can be seen in retail price wars that take place heavily in the Dubai market Malls also rely on both identical but differentiated product where anchor tenants such as supermarkets fast fashion and food courts are identical across competitors however in comparison malls offer ski slopes laser shows and ice rinks are part of the make up and are highly differentiated Chui 2016 The number of players in the mall market also mirrors Cournot's Theory of Equilibrium where malls have built their model on the same scales as other competitor malls offer For example the number of retailers are scaled similarly where the five super regional malls in Dubai average over 400 retailers and equally receive an average of 20M customers annually Mastercard 2017 



It can be seen that the total mall industry capacity expansion that resulted from these choices matched the expectations on which each competitor based their decision Besanko Braeutigam 2011 p 538 The number of players in the Dubai market would be determined firstly by the expectation of profit based on macroeconomic factors such high tourist trade strong consumer demand government subsidies such as no tax Therefore supply moves to the right leading to consumers demanding more which may push up prices This may incentivise existing malls to supply more through redevelopment adding more retailers which will increase consumer surplus Economics Online 2016 Whilst industry media report that the retail market that Dubai has been resilient to the number of malls opening this could also be explained as reaching equilibrium The mall market in Dubai can be seen as interdependent where even as the number of competitors grow and consumer surplus increases the output of each competitor continues to drive the rival to maximise their output choice Besanko Braeutigam 2011 p 535 in order to capture bigger share of residual demand



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