Contestable Market

In: Business and Management

Submitted By blackblood
Words 2998
Pages 12
The RAND Corporation
Contestability in Real-Time Experimental Flow Markets
Author(s): Edward L. Millner, Michael D. Pratt, Robert J. Reilly
Source: The RAND Journal of Economics, Vol. 21, No. 4 (Winter, 1990), pp. 584-599
Published by: Blackwell Publishing on behalf of The RAND Corporation
Stable URL:
Accessed: 15/04/2009 04:27
Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use.
Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission.
JSTOR is a not-for-profit organization founded in 1995 to build trusted digital archives for scholarship. We work with the scholarly community to preserve their work and the materials they rely upon, and to build a common research platform that promotes the discovery and use of these resources. For more information about JSTOR, please contact
The RAND Corporation and Blackwell Publishing are collaborating with JSTOR to digitize, preserve and extend access to The RAND Journal of Economics. RAND Journal of Economics Vol. 21, No. 4, Winter 1990 Contestability in real-time experimental flow markets Edward L. Millner* Michael D. Pratt* and Robert J. Reilly* This article reports the results from…...

Similar Documents


...”To stay competitive, organizations must change with market conditions and customer desires” (MacVicar & Gooderham, p1). Classic Airlines is facing a difficult time in their history. The organization has lost many of its loyal customers and its remaining customers are flying less frequently. The organizations CEO, Amanda Miller has challenged the marketing team with improving their number of loyal customers while increasing Classic Airlines profitability and stock price. All must be accomplished with a 15% cost reduction. To assist in its growth strategy, Classic Airlines marketing team is looking at growing globally and adding the United Kingdom to their international market. This paper will review channel and pricing strategies Classic Airlines must consider to achieve its desired results. Justification of choice of international market – UK Loyalty is a difficult goal and the most marketers can do at times is to encourage consumers to purchase one brand over another. Classic Airlines choice for an international market is access to the vast number of air travelers each year in the United Kingdom. The Department for Transportation in the United Kingdom estimates that “carrying over 235 million passengers a year and over 2.3 million tons of freight. Demand for air travel is projected to grow in the medium to long-term. Department for Transportation has put in place a long-term framework that balances the delivery of social and economic benefits from aviation...

Words: 1661 - Pages: 7


... 4) Marketing concept: customered centrered. The objective is not to find the best customer to your product but to find the right product for you customer. Focus on satisfying the needs and wants of target markets. 5) Societal Marketing Concept Another way of looking at the history of marketing: illustrated history of markets. Local Markets Mass Market segmented market market niches A series of made to measure markets. Examples of consumer goods for: * Local market: local newspapers, maroilles * Mass Market: Coca cola * Segmented Market: diet coke, cherry coke etc. * Market niches: baby care products, Ferrari (only a few customers because it is expensive) II- Marketing today Marketing is the endeavour of adapting organisations to their competitive markets in order to influence, in their favour, the behaviour of their publics, with an offer whose perceived value is durably superior to that of the competition. Lendrevie, Lévy and Lindon Many markets offerings consist of a variable mix of products and services. Marketing system: Key customer markets: Consumers: B to C Business: B to B Non profit Dual Marketing strategies: Marketing transactional marketing (of conquest) aims to increase the market share Marketing relationship marketing (of retention, loyalty) aims to increase the customer share (to maximise satisfaction) New marketing compared to conventional: Conventional | New | • Organize by...

Words: 700 - Pages: 3


... Issues and Concerns of Commodity Derivative Markets in India: An Agenda for Research Nilanjan Ghosh 1. Introduction Commodity derivative markets have traditionally been a contentious issue at various policy forums across the world, particularly with the imbroglio created by allegations from various corners that they encourage excessive speculation and are therefore responsible for the recent commodity price escalation. While this suspicion of excessive speculation in the commodity markets has always been there among policymakers in developing nations like India, it has become more widespread since 2008 in the wake of worldwide inflationary pressures on food and energy. The sudden deflation in the value of various assets underlying different derivatives, which includes commodity derivatives, in the wake of the global meltdown has provoked greater apprehension about the economic utility of futures markets. The suspicion has reached such a high that even the U.S., the biggest proponent of market forces with the most active commodity exchanges in the world, is considering new modes of regulation, and is also investigating the role of commodity derivative trading in the steep rise in prices of wheat, rice, and crude oil. On the other hand, ever since commodity derivative trading was allowed in India in the new millennium, there has always been a hue and cry against such markets, with the alleged notion of excessive “speculation”, though there has rarely been any evidence for it....

Words: 6878 - Pages: 28

Discuss How the Theory of Contestable Markets Could Impact on the Price and Output of a Monopoly Firm.

...Market structures are traditionally distinguished between four types i.e. perfect competition, monopoly, monopolistic competition and an oligopoly. They are determined on the basis of the number of firms in the market, the type of product, whether homogenous or differentiated and whether barriers to entry exist or not. Due to various specifications of all structures a “casual chain” is seen running from the market structure to the performance of that industry (Sloman, J. Hinde, K. pp 222) A monopoly involves one firm producing a good without close substitutes; that coincides with the firm. Barriers to entry exist thus making it difficult for new entrants to penetrate the industry and be a threat. The concept of the monopoly is relative since it crucially depends on how broadly or narrowly the product and the market are defined as. A monopoly firm can set the price as it is a price setter thus it has a certain degree of monopoly power that is determined by the difference between price charged and marginal cost expressed as a proportion of price. Monopolists can choose either the price or the level of output, but not both as it still faces a negatively sloped demand curve. Thus the monopoly firm does not have a supply curve. (Sloman, J. Hinde, K. 2007) For the monopoly firm to make supernormal profits it has to be a profit-maximizing firm. Therefore the firm shall not choose a rate of output Q that corresponds to the price inelastic segment of the demand curve. It will......

Words: 673 - Pages: 3

Market a great idea. Given the perfectly competitive firm is a price taker, the firm supply determines the quantity of output to produce in order to maximize profits. The firm can't determine the product's price, hence, the idea of limited decision making. In addition, the firm can't change its fixed cost in the short run. Therefore, the firm must choose the level of variable inputs that results in the profit maximizing output level. Determining price is out of our control, given the competitive firm is a price taker; the price is determined through the interaction of supply and determined through the interaction of supply and demand in the market. Markets always move toward equilibrium, so the market can determine the price. However, its the price that makes quantity demand equal to quantity supply. DISCUSSION DR. SU COMPETIVE MARKET When more or some items are supplied than demanded, competition among sellers trying to get rid of the excess will force the price down, discouraging future production. The resources used for that item being set free for use in producing some else that is in greater demand. Conversely, when the demand for a particular item exceeds the existing supply, rising prices due to competition among consumers encourages more production, drawing resources away from other parts of the economy to accomplish that. REPLY I think in economics anything that is optimal, or efficient, or cost minimizing or profit minimizing has marginal or profit......

Words: 1480 - Pages: 6


...Current Market Conditions Analysis Many people dream of becoming a business owner or even running a militia million dollar company. Imagine planning and organizing a large corporation when considering developing a new product or service. Ironically this process always starts with a vision or a dream. For instance according to Mactrast (2013), the very first Apple iPod contained an Easter egg; that was accessible by circumnavigating to the ‘About’ menu and holding down the center button for a few seconds (12 Interesting Facts about Apple). This products development emerges from an individual’s visions and dreams. When offered the opportunity to turn ones dreams into reality team A. acts swiftly; the marketing director at Apple Inc. is requesting for team A to create a competitive market analysis to determine the new products; the iPad mini’s potential success. Team A’s analysis will focus on Apples primary competitor in the product’s market. This analysis will help the team produce recommendations on how the organization can maximize profit-making potential, and successfully compete in the new market. The team must also consider the effects the recommendations will have on the corporation. Apple Inc. is an American worldwide corporation founded on April 1, 1976; the main headquarters is in Cupertino, California. Apple Inc. is an international corporation that bazaars and enterprises software and hardware for computers and electronics ("Apple Inc.," 2013).......

Words: 1731 - Pages: 7


...Definition Market share can be defined as the percentage of all sales within a market that is held by one brand / product or company.� Market share can be measured in several ways.� However, the two most important measures are by: - Sales revenue - Sales volume (the number of units sold) Examples of market share Market share information on the UK clothing retail market is summarised below: Position Brand Sales(�'m) Market Share (%) Number of Outlets 1 Marks & Spencer 2,743 10.2 315 2 Next 1,708 6.3 333 3 Arcadia 1,609 5.9 1,603 4 Debenhams 1,076 4.0 97 5 Asda 963 3.6 215 6 Matalan 776 2.9 137 7 Tesco 710 2.6 588 8 Bhs 631 2.3 163 9 New Look 552 2.1 573 10 John Lewis 482 1.8 25 Total of Top 10 11,250 41.8 UK Market 26,911 100.0 Source; Deutsche Bank 2002 The UK clothing market, as defined by Deutsche Bank in their recent report, is valued at �26.9 billion.� It is one of the most concentrated retail markets in Europe, with the top ten retailers accounting for some 42% of the market. What is market concentration?� It is the proportion of market value that is owned by the leading brands or products/companies in the market.� Where the market leaders own a large part of the overall market, the market is said to be highly concentrated.� By contrast, where the market leader has a relatively small market share and there are many other competitors, a market is said to be "fragmented" There has been little change in the concentration of the UK clothing......

Words: 483 - Pages: 2

Market Failure

...Market Failure An Economic Analysis of its Causes and Consequences Vani K. Borooah * Professor of Applied Economics University of Ulster February 2003 * School of Economics and Politics, University of Ulster, Newtownabbey BT37 0QB, Northern Ireland ( I am grateful to the Department of Finance and Personnel (Northern Ireland) for supporting this work though, needless to add, I alone am responsible for the contents of this paper and, indeed, for any of its deficiencies. 1. Introduction Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market- clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency1. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics2. These results - which are, of course, a vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in themselves. But there is more. The......

Words: 14595 - Pages: 59

The Market

...The market, its definition A market consists of all the consumers who purchase a particular type of good or service. The market may be sub-divided into separate segments each of which can be considered to be a separate market in its own right. It is very important for a business to be able to define its market [1]: 1. So that it can estimate the size of the market 2. So that it can forecast the growth of the market 3. To identify the competitors in the market 4. To break the market down into relevant segments 5. To create an appropriate marketing mix to appeal to customers in the market. There are different types of markets for example: Business-to-Business (B2B) markets in which a businesses customers are other businesses. Business to Consumer (B2C) markets in which businesses sell to other customers. . Markets are typically structured into segments. Primary segmentation is between customers buying entirely different products. [2]. Contribution of marketing to achievement of its business objectives The strategic plan therefore is the detailed planning involving marketing research, and then developing a marketing mix to delight customers. Every organisation needs to have clear marketing objectives, and the major route to achieving organisational goals will depend on strategy. It is important, therefore, to be clear about the difference between strategy and tactics [3]. . Marketing can thus be seen as the process of developing and......

Words: 5306 - Pages: 22


... should  be.  This  approach  is   based   on   the   theory   that   only   the   government   can   make   fair   and   proper   provision  for  all  members  of  society.   b) In  a  free   market  economy,  the  decisions  and  choices  about  resource  allocation   are   left   to   market   forces   of   supply   and   demand,   and   the   workings   of   the   price   mechanism.   This   approach   is   based   on   the   observable   fact   that   it   generates   more   wealth  in  total  than  the  command  approach.   c) In  a  mixed   economy  the  decisions  and  choices  are  made  partly  by  free  market   forces   of   supply   and   demand,   and   partly   by   government   decisions.   Economic   wealth  is  divided  between  the  private  sector  and  the  public  sector.  This  approach   attempts   to   combine   the   efficiency   of   the   market   system   with   the   centrally   planned  system’s  approach  to  fair  and  proper  distribution.       Since  resources  for  production  are  scarce  and  there  are  not  enough ......

Words: 17959 - Pages: 72


...Market equilibrium Consumers and producers react differently to price changes. Higher prices tend to reduce demand while encouraging supply, and lower prices increase demand while discouraging supply. Economic theory suggests that, in a free market there will be a single price which brings demand and supply into balance, called equilibrium price. Both parties require the scarce resource that the other has and hence there is a considerable incentive to engage in an exchange. Price discovery In its simplest form, the constant interaction of buyers and sellers enables a price to emerge over time. It is often difficult to appreciate this process because the retail prices of most manufactured goods are set by the seller. The buyer either accepts the price. or does not make the purchase. While an individual consumer in a shopping mall might haggle over the price, this is unlikely to work, and they will believe they have no influence over price. However, if all potential buyers haggled, and none accepted the set price, then the seller would be quick to reduce price. In this way, collectively, buyers have influence over market price. Eventually a price is found which enables an exchange to take place. A rational seller would take this a step further, and gather as much market information as possible in an attempt to set a price which achieves a given number of sales at the outset. For markets to work, an effective flow of information between buyer and seller is essential. Market......

Words: 1212 - Pages: 5


...imports of products into a country cannot provide an accurate market potential of the product. The market potential of a product manufactured by a firm depends on the total demand of the product and the total supply of the market. One thing to take a look at is quantity demanded. The quantity demanded of any product by customers is not constant. It varies with the price of the product. For example a decrease in price usually increases the quantity demanded. When a new product enters a new market through importation there is an increase in its price. This is due to the additional costs of shipping the product from the country it was manufactured in and the import duty and other taxes imposed by the nation. Therefore, a company could be exporting a lot of products to a new market but be losing profit margins because of increased expenses. To estimate the market potential of a product it is essential to look at the actual customers are. Another thing to consider is why they want the product and how the price affects them. Another reason is that they may be making the product domestically. Even when basic need is identified, research look for current trade flows to see what level of activity is in place. Just because goods are currently imported doesn’t mean they will be imported in specific countries. Initial screening evaluated the basic need for a product or service in a specific market. It evaluates markets relevant to product characteristics. This is a......

Words: 536 - Pages: 3


...Current Market Conditions Competitive Analysis The demand for electric motor vehicles is an established and ever growing market worldwide and we must consider that it will eventually develop into a competitive market with similar electric vehicle products.  A paramount challenge for Tesla and our potential launch as competition in the electric vehicle market is meeting realizing the break even point is possible given production capacity.  Demand for functional, quality electric vehicles is high and one consideration that has given stockholders pause in considering their investment is determining whether Tesla can meet production requirements to break even and eventually profit. There is a strong demographic for customers of electric cars as there are many Americans interested in saving money on fuel consumption and being more ecologically responsible with lessened emissions and carbon footprint. California is a stronghold for the electric automotive market because of higher gas prices and belief system of those who live there. The electric vehicle (EV) market is growing fairly rapidly according to new analysis from the Centre for Solar Energy and Hydrogen Research — with more than 320,000 new EV registrations in 2014, bringing the total global market up to 740,000 vehicles. These numbers will continue to grow as fuel prices continue being instable and as new EV makers figure out ways to capture potential buyers with state of the art design and performance technology. ......

Words: 2512 - Pages: 11


...OVERVIEW OF MARKETING OVERVIEW OF MARKETING 1 LEARNING OBJECTIVES After reading this module, students should: Know why marketing is important Know what is the scope of marketing Know some of the fundamental marketing concepts Know how marketing management has changed Know what are the necessary tasks for successful marketing management Know scope and importance of marketing Know what are the recent trends of marketing Know what are the different levels of market segmentation Know how a company can divide a market into segments Know how a company should choose the most attractive target markets Know what marketing mixes are. SUMMARY From a managerial point of view, marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders. Marketing management is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. Marketers are skilled at managing demand: They seek to influence the level, timing, and composition of demand. Marketers are involved in marketing many types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas. They also operate in four different marketplaces: consumer, business, global, and......

Words: 8049 - Pages: 33

Market Failures

...Market Failures by Erik F. Meinhardt This section sets out to define and describe market failures, how government intervention prevents them or minimizes their effects, and the arguments against government intervention. I. Definitions and descriptions Market failure occurs when free markets do not bring about economic efficiency, that is to say when a Pareto sub-optimal allocation of resources exists in a particular economy. Market failures remain one of the best reasons for government intervention within an economy on moral and economic grounds, arguably, in the best interest of the public. The following are detailed descriptions of several market failures in no particular order: A. Public goods—Public goods are goods wherein the consumption of them does not necessarily prevent another person from also consuming it, nor does that consumption make less of the good available for consumption by others. Scholars commonly present breathable air as an example of a public good for virtually everyone has access to consume it and its consumption does not limit the amount available. Public goods pose a problem for the market because by their nature it cannot provide for them. The private sector will not make a profit from a good which everyone can enjoy whether or not they pay for it. The lighthouse example comes to mind: no matter who pays for the construction of a lighthouse on a particular island, every passing ship will benefit from the protection it provides and...

Words: 1536 - Pages: 7