Economic Analysis Of Competitive Advantages

What is competitory advantage? Competitive advantage is concerned with both the macroeconomic and microeconomic construct. In this paper, we topographic points emphasize on microeconomic construct. We make used of microeconomic cognition to analyse the houses, in order to do right determinations and a maximal net income, a lower limit costs and continually turn, which needs to analyse the power constructions and webs between decision-makers of these houses, and to do appropriate determinations. Competitive advantages of a house are affected by tonss of factors, which include the concern uncertainness, gross maximization for hard currency flow, perchance puting in invention for a long term economic sustainability.

This paper analyzes the demand and supply snap, production and costs, and net income maximization of the different industries through the existent illustrations, and comes to conclusion that the differences of either at the degree of the houses that are farming, auto industry and eating house trade, or at the wider industries-level that are the perfect competition, oligopoly and monopolistic competition.

1. Farming and Perfect Competition

In general, if the market size of purchasers and Sellerss is more adequate, and each person ( including purchasers and Sellerss ) are monetary value takers, and can non impact the market monetary value entirely, this province is called the competitory perfect competition. We besides call this market as the to the full competitory market. In economic sciences, farming normally is seen as an illustration of perfect competition. In the full competitory market, the demand and supply of the goods are ever equilibrium, which means the demand equals supply of the goods.

1.1 Demand and provide analysis snap

From the image ( 1 ) , we can calculate the demand snap that is inelastic because the measure demanded does non react to monetary value alterations, harmonizing to definition of the snap that the monetary value snap of demand is computed as the per centum alteration in the measure demand divided by the per centum alteration in monetary value ( Joshua, 2003 ) . At the same clip, the supply elastic peers 0 that is absolutely inelastic supply.

1.2 Production, Costss and Profit Maximization of Perfect Competition

Harmonizing to the microeconomics, the costs of merchandises include fixed costs and variable cost, overhead costs and direct seashores. The production map shows the relationship between measures of inputs used to do a good the measure of end product of the merchandises. Production procedure composes of inputs factors to accomplish and end product. ( Gans et al. , 2005 ) . In the perfect competition, all the industries input the same costs and end product the indistinguishable characteristic merchandises and the same measure merchandises.

What are the mean cost and the fringy cost? It means that the industries produce the unit merchandise to do usage of how much costs. However, when the industries produce one unit production, it increases the sum of inputs that is called the fringy cost. Every industry has the same mean cost and fringy cost in the perfect competition market, and in the long tally, such market is both electively and fruitfully efficient. In the long tally, the industries minimize the cost under the certain production, and cut short-run accommodation of same factors of production to do the lowest cost ; a figure of industry makers change the industry if there is extra net incomes will do companies to come in ; industry representative house losingss, some companies will go forth the industry. Competition for net incomes goes beyond established industry challengers to include four other competitory forces every bit good: clients, providers, possible entrants and replacement merchandises ( Porter, 2008 ) .

Under the perfect competition market, any industry wishes to accomplish the net income maximization. We can explicate the market monetary value of the merchandises peers to its fringy cost devising usage of the microeconomic cognition, and a factor & A ; acirc ; ˆ™s monetary value peers the factor & A ; acirc ; ˆ™s fringy gross production which allows for derivation of supply curve on which the neoclassical attack is based.

2. Car industry and Oligopoly

Car is one of the most of import agencies of conveyance, is a mark of the degree of scientific and technological development. The auto industry is a capital intensive, engineering intensive, forces intensive, comprehensive strength, high cost industry. Without exclusion, about all industrial states in the universe put the auto industry as the pillar industry of national economic system. Automobile development, production, gross revenues, operations are closely related to many sectors of the national economic system. Car industry plays a really of import function in advancing the socio-economic development and scientific discipline and engineering development. Japan, U.S. , Europe and other developed states are characterized by the development of car industry concentrated monopoly capital, utilizing hi-tech advantage, mass production methods and so on. Such as in the United States, General Motors, Ford, Chrysler Big Three monopoly over 90 % of the U.S. car production. The production of Eight Western Motor Group accounts for about 70 % of universe auto production.

2.1 Demand and provide analysis snap in oligopoly

If a merchandise is supplied by merely one company, and there are no similar replacements to it, so we can name the company a monopoly and the market is monopolistic. The end product determinations of monopoly endeavor can find the merchandise market monetary value. In the existent economic life, monopoly market is about non-existent. The auto industry is a signifier of monopoly capital par excellence. A few big companies from four states ( US, Japan, France, Germany ) have divided up universe production and the universe market amongst themselves. Monopoly endeavor faces the market that the industry demand curves. For all the non absolutely competitory markets with monopoly elements, or that every individual house in the market can command the monetary value in some grade, so in the market single steadfast demand curve inclining downward to the right, there is no the short and long-run supply curve.

The above expression denotes the relationship of the auto industry monopolizer & A ; acirc ; ˆ™s fringy gross, monetary value and the monetary value snap of demand. There are three conditions of the above expression: When E & A ; gt ; 1 and MR & A ; gt ; 0, at this point, TR curve incline is positive, stating entire gross TR of automotive makers will increase with gross revenues of Q increasing. When E & A ; lt ; 1 and MR & A ; lt ; 0, at this point, TR curve incline is negative, stating entire gross TR of automotive makers will drop with gross revenues of Q dropping. When E & A ; lt ; 1 and MR & A ; lt ; 0, at this point, TR curve incline is zero, stating entire gross TR of automotive makers will accomplish maximal point.

Some Western economic experts believe that monopolies makers to utilize monopoly net incomes on the long term, hence, monopolies are non contributing to technological advancement. In extra, western economic experts believe that the formation of high monopoly net incomes by prosecuting in scientific research and technological invention and strong economic strength monopoly to keep monopoly net incomes are contributing to technological advancement.

3. Restaurant trade and Monopolistic Competition

Monopolistic competition is that tonss of the makers to bring forth and sell similar merchandises but different mass-market phenomenon. The market has a big figure of manufacturers and consumers that have different penchants and the trade goods and services are non-homogeneous. And the industries can come in the monopolistic competition market freely. The figure of industries is more but the graduated table is comparatively little. Merchandise similarities and differences between each other-the difference with perfect competitory market is where the demand curves inclines downward so. Industries with monopoly entree to unlimited-the difference between the markets where the resources can be transferred between sectors. There are many monopolistic competition industries, such as eating house trade, Gas Stationss group, fast nutrient group, barber store group and so on. The following we will take eating house trade as illustration to analyse the demand, monetary value finding, and net income maximization of Monopolistic Competition houses.

For all the monopolistic competition markets, every individual house in the market can impact the market monetary value in some grade, so in the market single steadfast demand curve inclining downward to the right, there is no the short and long-run supply curve. The declivitous demand curve of monopolistic rivals is comparatively level, and it is comparatively close to the demand curve of absolutely competitory houses.

The short-run market equilibrium status: MR=MC

Monopolistic competition in the long-term market equilibrium conditions are as follows: ( 1 ) MR=MC, ( 2 ) P=LAR=LAC


In the portion, I will compare to competitory advantages of perfect competition, oligopoly and the monopolistic competition. First, by and large talking, the goods on the perfect competition do non run into the assorted penchants of the clients, but on the monopolistic competition market, assortments goods are good for the different picks of the clients. Furthermore, these merchandise distinctions on oligopoly competition market are similar to the monopolistic competition market.

The 2nd difference is that the monetary value of goods is influenced otherwise to some extent in different market. In the perfect competition market, the industries is the monetary value takers and bring forth the indistinguishable merchandises, every bit good as the monetary value is the same with each other. However, in the oligopoly, and monopolistic competition market there are a batch of the industries that produce different characteristic merchandises, therefore, the monetary value of merchandises is the different with the different merchandises. At last, the industries can freely come in the perfect competition market and the monopolistic competition market, alternatively of entry barrier and mutuality.