Quadptex Market Power
Under the assumptions of perfect competition that all firms are price takers, they all produce a homogenous product, and there are no barriers to market entry or exit; it makes it inherently difficult for the company to affect the products price. This being the case, it doesn’t make sense for them to sink a lot of money into research and development or technological advances that will not bring them an increase in their profit levels since they can’t raise the product price in order to increase their profit. In perfect competition, all competitors should focus on reducing their production costs as much as possible in order to make them able to be more competitive in the market. I would think it would be difficult to encourage a company to
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Even though QuadPlex Cinema has market power, it is losing money. Even though a firm has market power, when they increase price the demand will fall. The measurement of market power is based on the availability of substitutes. Since there are no more cinemas extremely close by, QuadPlex inherently has some degree of market power. As a way of measuring market power, they can use the Lerner index. It states L= (Price - Marginal Cost)/ Price. The higher the index number, the more market power the firm has. However, they cannot raise prices indiscriminately because thanks in part to today’s technology there are readily available substitutes to those willing to use them. We have Netflix, RedBox, cable, satellite TV with pay per view and others. There is also the availability of streaming TV and movies over the internet from the comfort of our home. QuadPlex can either increase the price or decrease their expenses in order to increase profits. As we learned previously, the price can only be raised as high it will allow until the marginal revenue equals the marginal cost. If the management just tries to raise prices up as high as they can reasonably get away with, business may in fact suffer even more than it already has. I think there are several other options for QuadPlex cinemas to increase their profit margin. The best way is obviously to reduce their operating expenses. In an effort to increase consumer patronage, could they offer special deals for certain age groups or times and days of
Even though QuadPlex Cinema has market power, it is losing money. Even though a firm has market power, when they increase price the demand will fall. The measurement of market power is based on the availability of substitutes. Since there are no more cinemas extremely close by, QuadPlex inherently has some degree of market power. As a way of measuring market power, they can use the Lerner index. It states L= (Price - Marginal Cost)/ Price. The higher the index number, the more market power the firm has. However, they cannot raise prices indiscriminately because thanks in part to today’s technology there are readily available substitutes to those willing to use them. We have Netflix, RedBox, cable, satellite TV with pay per view and others. There is also the availability of streaming TV and movies over the internet from the comfort of our home. QuadPlex can either increase the price or decrease their expenses in order to increase profits. As we learned previously, the price can only be raised as high it will allow until the marginal revenue equals the marginal cost. If the management just tries to raise prices up as high as they can reasonably get away with, business may in fact suffer even more than it already has. I think there are several other options for QuadPlex cinemas to increase their profit margin. The best way is obviously to reduce their operating expenses. In an effort to increase consumer patronage, could they offer special deals for certain age groups or times and days of