Price, Profits, and Competition You may be aware that there are three types of p

Question

Price, Profits, and Competition

You may be aware that there are three types of profit: accounting profit, economic profit, and normal profit. The difference between the total revenue and the sum of the explicit and implicit costs of an organization results in economic profit. It is commonly assumed that every firm's goal is to maximize its profit, and the economic theory of business is built on this underlying assumption.

Submit by Day 7 a 300- to 700-word paper that addresses the following:

Describe the economic principles that company executives should consider when developing a strategy or strategies that will maximize profits while minimizing incentives for competitors to develop competing products. Explain why each of these economic principles is important to the company's strategy. Recommend and justify a strategy that you believe will maximize profits while minimizing incentives for increased competition.

Explanation / Answer

Economic theory has identified several strategies to maximize economic benefit. The best known are: differentiation, reduction or cost control, compete through lower prices or the preservation of market share to ensure a margin of economic benefit, depending on the cost structure of the company and the behavior of the market demand.

At highly competitive markets in which the product offered is quite homogeneous there is no room for innovation, for the good or service offered is not differentiable, competition is price, so the economic benefit in the long term tends zero. Aca a scenario in which there is potential to increase the economic benefit of the firm discouraging competitors to market products to rival those provided by our firm, which logically, in terms of marketing, presented an important differentiation arises with regard the competition, which guarantees a certain market share and corresponding profit margin associated.

The idea here is to ensure the current margin of economic benefit deterring competitors to develop products that manage to meet the distinct needs that currently we cover in a partially exclusive, since our product has a component of differentiation that makes it particularly valuable for customers.

Noncompetitive way to achieve this is by developing certain barriers to entry for competitors. This is generally harmful to consumers because it restricts their freedom of choice and forces them to pay higher prices for the absence of competition, however, has found that some barriers to market entry favoring innovation and economic growth because they work as an incentive to develop products that otherwise would not have been invented, unless there appropriating the promise of profit above the marginal cost of production.

The barriers to entry to the most common markets are: Proprietary technology, Ongoing innovation, Scale of production, Initial Investment, Brand Networks, Customer involvement, Self-expressive benefits, Brand equity and loyalty.

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