Unit 9: Exercise 9-2 - Comparing Market Structures

	Oligopoly	Monopolistic competition	Monopoly	Perfect competition
Number of firms	Small number of large firms	Large number of small firms	One	Many
Freedom of entry	Difficult	Relatively easy	Very difficult	Easy
Nature of product	Differentiated/undifferentiated	Slight differentiation	Unique – No close substitutes	Homogenous (undifferentiated)
Product example	Automobiles	Travel agent	Airports	Coffee
Implications for demand curve	Downward sloping (relatively inelastic)	Negatively sloped (relatively elastic)	Negatively sloped (moreso than oligopoly, firm has considerable control over price)	Horizontal (price takers)
Average size of firms	Large	Medium	Large (economies of scale)	Small
Possible consumer demand	Medium/high	Low/medium	High	Low
Profit making possibility	Medium	Low/medium	High	Very low/none
Government intervention	Medium	Medium (occasionally)	High	None
Positive quality	Better quality of service as they strive for customer loyalty	Some control over price	High profits can lead to initiatives beneficial to society e.g. technological breakthroughs	Keeps the market competitive

Unit 8: Exercise 8-1 - Defining Oligopoly and Game Theory

Game Theory has been likened to that of a poker game, where you are constantly judging your opponent's next move, trying to determine the various outcomes of the hand based on cues and the cards that have already been drawn.

The concept of game theory was developed by economists John Neumann and Oskar Morgenstern in the 1940s to analyze strategic behaviour. In a market, collusion exists when suppliers choose to cooperate with each other in order to achieve maximum profitable outcomes in business ventures by setting the price of a product or the quantities that each will produce. Collusion is illegal and banned in most countries. The term "cartel" refers to the formal agreement of cooperation among the firms. (Sayre, E. John, Morris, J. Alan, Principles of Microeconomics, ed. 6, pg. 387 and 390) 



Below is an example of the payoff matrix, which provides a visual depiction of the results of two firms operating in collusion, and the subsequent advantages and disadvantages of each firm going against each other to obtain a competitive advantage over the other.

Source: http://www.beyondintractability.org/essay/prisoners_dilemma/

In the current economy there is evidence of game theory everywhere! Have you ever made a purchase and been asked for your postal code? Even that simple act is being used to gauge who shops at a specific store, the date, time and cost of the purchase --- assisting with the anticipation of your next move.

Another excellent source on game theory is located here: http://plato.stanford.edu/entries/game-theory/#Neuro as well as an article written describing the role of game theory in the realm of supermarkets here: http://ageconsearch.umn.edu/bitstream/20108/1/sp04ju01.pdf

Unit 7: Exercise 7-1 - Defining Monopolistic Competition

Monopolistically competitive markets have many producers in the market, with no business having total control over the market price. Consumers perceive that there are non-price differences among the competitors' products (product differentiation), there are few barriers to entry/exit, and producers have some control over price.

Product differentiation is important with monopolistic competition because it helps a company seem different to the consumer, and presumably better than the others on the market.

Several ways to differentiate products are by developing a recognized brand name, product logo or packaging; securing a superior location or developing a reputation for exceptional services; engaging in product redevelopment and improvement; and developing an effective advertising strategy.

Monopolistic Competitive Companies

	Small Company	Medium Company	Large Company
Features:	Autobody (Calgary Coachworks)	Shoe store (Shoe Warehouse)	Fast food chain (Dairy Queen)
Differentiated products	Specializing in collision repair	Accept Airmiles on purchases. No other big differentiations	Healthy options (salads), ice cream (now in smaller sizes), milkshakes
Control over price	Yes (if independent)	No	No
Mass advertising	Word of mouth, radio, flyers	Flyers	TV commercials
Brand name goods	Dependent on supplier for materials, etc.	Company brand name isn’t incredibly strong, but they carry a lot of brand name shoes (e.g. Sketchers)	The Dairy Queen brand name is strong
Barriers to entry/exit	No	Franchise opportunities could be expensive	Franchise opportunities could be expensive
Location	Everywhere	Shopping malls	Shopping malls, foodcourts in schools, office buildings, etc.

Some further examples of monopolistically competitive industries are real estate, software design, authors, proofreaders, manufacturing markets, such as textiles, footwear and furniture, brake and muffler shops, travel agencies, hair salons, dry cleaning shops, retail (clothing) shops, gasoline retailing, hairdressing, shoe repair, tax accounting, and almost all services aimed at the home owners, such as roofers, plumbers, carpet layers, and painters.

A model of monopolistic competition:

Source: http://ingrimayne.com/econ/International/MonoComp.html

Unit 6: Exercise 6-2 - Competing as Starbucks

Starbucks is everywhere, even as a non-coffee drinker the Starbucks brand is engraved in my mind. The logo, the coffee cups, and the excitement that generates in my office when it's time for a coffee run. 


There are many coffee shops in Canada, some of the more well known being Tim Hortons, Starbucks, Second Cup and Good Earth.

Coffee shops fall under the definition of perfect competition because there are many buyers and sellers in the market, and there is relatively easy entry into the coffee business. Another common characteristic of perfect competition is that there are no preferences shown to one specific company. I would initially say that Starbucks doesn't meet this definition solely based on the attitudes of my current office downtown where everyone shows a preference to Starbucks, however, outside of the office I know a lot of people who like Tim Hortons, Second Cup and even McDonalds and therefore, the preferences balance themselves out. As well, under perfect competition, not one person is powerful enough to control the price of the product being sold. In fact, “Coffee is one of the most economically sensitive commodities out there, and prices have gotten well above where the fundamental values say they should be,” said Spencer Patton, of Chicago-based Steel Vine Investments LLC.

The price for coffee at Starbucks is comparable to the prices of its competitors, however, the cost of specialty coffees is much higher. I believe that one of the reasons Starbucks has been afforded the opportunity to charge higher prices for their products is because of market saturation. Starbucks locations are conveniently and strategically placed in malls, office buildings and even Chapters locations.

Recently, Starbucks has been hit hard by the recession and their huge expansion efforts, and has been forced to close hundreds of stores as a result of dwindling profits. (Starbucks Gossip)

The following is a quote taken from a letter written to the CEO of Starbucks by Chairman Howard Schultz in February 2007. "The loss of aroma -- perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage?". This quote resonates with me when considering Starbucks and their business practice. Starbucks needs to go back to the basics and revisit their values to once again stand out in the market with the uniqueness of their coffee experience. If Starbucks is trying to achieve long-run profitability, they need to consider the short term and perhaps run in a marginal loss in order to begin the process of reestablishing themselves in order to become profitable once again.

The following is a depiction of a decrease in prices on Starbucks coffee:

Graph source: http://www.emeraldinsight.com/journals.htm?articleid=859635&show=html
Starbucks Gossip: http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html

Unit 4: Exercise 4-3 - Income and Cross Elasticity

Elasticity of Demand for Education
I find it difficult to step outside of myself when it comes to elasticity and try to think of the greater population and how they would react to price changes. When it comes to education I would go to any lengths to get what I want. If I wanted to be a nurse, I would enroll right now, I wouldn't price shop, but I would definitely attend an institution that works for me whether it be by reputation, distance from home, or flexibility in schedule. I would ask my employer for monetary assistance, take out a loan, apply for scholarships, etc. and would take the course regardless of how much it costs. However, I realize that not everyone even has a job where they can reach out to their employer, they are debt shy, or aren't eligible for student loans, and therefore elasticity of demand is higher for them.

The article, Tuition Elasticity of the Demand for Higher Education Among Current Students: A Pricing Model, http://www.questia.com/googleScholar.qst?docId=5000354133, clearly states that demand for education is elastic and higher prices in tuition can greatly influence the number of students that attend any institution in any given year.

Studies show that students are requesting more and more studies online and through distance education to align with and fit in with their busy schedules, as well as their pocketbooks. Since online education carries less cost than if you were to physically attend the institution (e.g. lower cost for supplies, equipment, travel), institutions need to take these factors into account when putting together their tuition pricing models.

The following article, Price Elasticity of Demand for Education At a Private University, http://www.jstor.org/pss/27536388, outlines the elasticity coefficients used in determining the effect of tuition increases on enrollment.

Unit 5B: Exercise 5-5 - Long Run Costs and Economies of Scale

Love Connections
My company would be a Calgary-based speed dating company called Love Connections. The company would offer residents of the Calgary area ages 25 to 35 the opportunity to meet other local singles in hopes of making a love connection during a one-hour speed dating session. Each session would cost interested parties a $30 fee, which would include one free beverage. All sessions would take place at various coffee shops throughout the city, on Tuesday evenings.

The size of the business would be small as coordination of efforts to run the session and to secure interested parties would be minimal e.g. advertise the service for free on Facebook, Kijiji, etc., with links to the main website developed and maintained by the owner and 1 to 2 staff members.

Some of the costs associated with the business would be:

• Car/car insurance - Fixed
• Labour - Short run depending on demand
• Advertising - Continuous and variable (long-run) cost for advertising.
• Phone/Internet - Fixed cost (contract)
• Cost of supplies (computer, timer, pens and paper, conversation topics, etc.) - Variable
• Mileage - Variable

A similar business to Love Connections offered in Calgary would be what is offered by "It's Just Lunch", http://www.itsjustlunchcalgary.com/?ijlppc=google, which is a dating service geared toward busy professionals.

An immediate weakness seen in this concept is that busy professionals tend to be just that. Busy. So why introduce a service that they are potentially too busy during the work day (at lunch) to utilize? I would consider changing the business to "It's Just Dinner" and arranging sessions in the evening.

One of the company's strengths that Love Connections doesn't offer is having each potential participant fill out a survey to indicate what they're looking for in a partner, and to match them with a particular individual that meets those 'qualifications'. With Love Connections, connections are based more on the emotional and physical "vibe" that is generated from the excitement of the speed dating sessions.

Source: http://www.aspieweb.net/wp-content/uploads/2010/08/aspergers-love.jpg

Unit 5A: Exercise 5-3 - Law of Diminishing Returns

The Diminishing Returns to Tobacco Legislation
The article, The Diminishing Returns to Tobacco Legislation by Pierre Lemieux, http://www.pierrelemieux.org/artdiminish.html, describes the dimishing returns resulting from government intervention to prevent smoking.

One point of particular merit in the article is that over exposure to health warnings on cigarette packs eventually leave people feeling desensitized. Another example of this can be seen in the rise of violence and crime as people become more desensitized to violence because of films and the internet.

Source: http://www.cdc.gov/pcd/issues/2007/apr/images/06_0024.jpg

In the case of cigarette smoking, diminishing returns were quantified when from 1985 to 1995 the government saw a 52% increase in tax on cigarettes and an 18% decline in smokers; and when from 1995 to 1999 when prices again jumped 48% it yielded only an 11% decline in smokers. This resulted in the increased attempt to cover cigarette packs in alarming images of the negative health effects of smoking.

In Quebec, retail outlets started selling cigarette pack covers to hide the warning messages imposed by government, however, they only had a 1% impact on cigarette sales, which only reinforces the argument that people are indifferent to the panic messages set out by the government.

The statement "health bureaucrats have become addicted to power" lessens the credibility of the article because of the reality and seriousness of the subject matter. Health bureaucrats aren't addicted to power, they are merely fighting to correct a very serious issue that leads to thousands of deaths each year, and it is something that needs to be addressed immediately.

Some suggestions that could lessen the diminishing returns on government intervention to stop smoking would be limiting the production of cigarettes and availability in stores, restaurants, casinos, etc. Also, increasing awareness programs, and developing new ways to raise public awareness of the detriments of smoking.

However, these tactics could have great effects on supply and demand. As stated in the article, as supply or ability to purchase cigarettes decreases (e.g. due to a raise in taxes), some people will conduct illegal activities in order to get their fix; smuggling, theft, etc.  

In terms of sin taxes, the higher the tax imposed on an inelastic product, the higher the revenues.  Since there are no close alternatives to an inelastic product, consumers will still purchase the product and will not be as affected by a change in price. In other words, the government could continue to impose higher and higher taxes on cigarettes, but consumers will still continue to buy or resort some of the tactics listed above in order to get them.

Unit 4: Exercise 4-2 - Elasticity and Revenue

American Testing 'Elasticity' of Business Fares

Source: http://proquest.umi.com.libresources1.sait.ab.ca/pqdweb?index=7&did=245015231&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1315070488&clientId=5337

This article discusses the relationship between flight prices, and a business travelers willingness to fly based on flight prices. Since the recession, previously perceived inelastic business travelers and becoming more characteristic of leisure travelers in that flight prices are a major determinant in whether or not they fly.

American airlines tested this theory by lowering last minute fares on flights; the yields were surprising since it was always assumed that business travel was inelastic.

The following graph depicts the increase in revenue as American dropped their flight prices by 40%:

Some of the basic rules of elasticity are as follows: 

• When the average revenue (demand) curve is elastic, marginal revenue is positive and total revenue is increasing.
• When the average revenue (demand) curve is inelastic, marginal revenue is negative and total revenue is decreasing.
• When average revenue (demand) curve is unit elastic, marginal revenue is zero and total revenue is not changing (Amosweb)

State of Tourism Industry in Canada

Before diving into this assignment I culled a list of my current assumptions about the Canadian tourism industry.

Assumptions:
- A large contributor to our tourism industry is from foreign travel. Due to the economic uncertaintly in the States, it can be assumed that tourism has been lower recently than in previous years.

- Travel within Canada is very expensive and therefore it could be assumed that most Canadians neglect to explore our beautiful country!

- Some of the world's recent events (e.g. 9/11) may deter people from traveling, as well as increased security at airports and tighter restrictions on travel.

The following article, http://www.ic.gc.ca/eic/site/dsib-tour.nsf/eng/qq00132.html, details the turbulations that the industry has gone through within the last few years and where the future is headed.

One of the biggest issues that is currently being explored by the tourism industry is how to cater and gear marketing campaigns to the rapidly aging population.

Source: International Travel 2003, Statistics Canada

"The Government of Ontario's report ”Impacts of Aging the Canadian Market on Tourism in Ontario,“ states that ”if the new generation of [mature] Ontario residents displays similar tourism activity preferences to their 2000 counterparts, the impact of an aging population will result in a shift away from outdoor activity such as canoeing and fishing, towards non-strenuous warm weather activities and indoor cultural events and attractions.“ This reinforces the importance of conducting research on travel patterns to be able to tailor tourism products, and be more responsive to present and future preferences."

Based on the above excerpt, it can be assumed that warm weather activities and indoor cultural events and attractions are an inelastic demand for the aging population. Prices tend to be lower for seniors, and you'll often find "seniors discounts" due to their lower incomes, as well, there are no substitutions for a great vacation!

The condition of the tourism industry is not suffering in Canada, however, the need for flexibility and adaptability in order to cater to the fluctuating economy and demands of individual groups is imperative.