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TOPIC 5 : THE HOSPITALITY INDUSTRY AND MARKET STRUCTURE - Coggle Diagram
TOPIC 5 :
THE HOSPITALITY INDUSTRY AND MARKET STRUCTURE
MARKET STRUCTURE
Definition of market structure
Market structure is the organizational and other characteristics of a market.
Classifying Markets by Degree of Competition
freedom of entry to industry
nature of product
nature of demand curve
marketing strategy either use price or non-price competition
number of firms
Types of market structure
Perfect Competition
Monopoly
Monopolistic competition
Oligopoly
Profit maximization: Total and marginal approach
Concepts of revenue
Average Revenue (AR) = Total Revenue/Quantity
Marginal Revenue (MR) = Change in Total Revenue/Change in number of units
Total Revenue (TR) = Quantity x Price
Approaches used to determine profit
Marginal approach : MR = MC
Aggregate approach : TT =TR - TC
Perfect competition
Short-run and profit maximization for perfect competition
Short-run equilibrium
Supernormal profit
a situation where total revenue is greater than total cost
Normal profit
firm's equilibrium is at points E because MR = MC = Price
Subnormal profit
a subnormal profit occurred when total cost is greater than total revenue
Approaches used to determine profit
aggregate approach : TT = TR - TC
marginal approach = MR = MC
Long-run equilibrium in perfect competition
Adjustment to Lung-run Equilibrium in Perfect Competition
abnormal profits, entry of new firms
price = long run average cost
market supply forcing down the price
Characteristics of perfect competition
Each unit of input is homogeneous
Price taker
Firms produce homogeneous
Large number of firms in market
Perfect knowledge
Monopoly
Short-run profit maximization for monopoly
Normal profit (TR - TC = 0)
Subnormal profit (TR - TC < 0)
Supernormal profit (TR - TC > 0)
Long-run equilibrium
able to maintain a supernormal profit
not earning profits all the times
Characteristics of Monopoly
Sellers do not engage in strategic behaviour
No new firms can enter the market
Buyers are price takers
Sellers are price makers
Monopolistic competition
Short-run profit maximization for monopolistic competition
supernormal profit (TR - TC > 0)
subnormal profit (TR -TC < 0)
normal profit (TR - TC = 0)
Long-run profit maximization for monopolistic competition
normal profit (due to easy entry/exit)
Characteristics of monopolistic competition
slightly differentiated product
downward-sloping demand curve
freedom of entry
easy entry/exit
many firms
non-price competition
Oligopoly
The Kinked Demand Curve Model
to avoid which could lead to price wars among them
make efforts to operate in non-price competition
Characteristic of oligopoly
either homogenous or differentiated products
non-price competition
few large firms
entry is very difficult
Price Leadership Model
not happy with price competition
to maximize joint profits