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6:16 PM
JJO Tech
1. There are various types of firms in the IT market. First of all, 21 century internet shopping became the boom. They control about 15%~20% of Latvia’s electronic devices. Internet shopping has various advantages but also disadvantages. The biggest advantage of internet shopping is that customers can sit on the chair and choose the product. The next advantage is the price of product. Products from internet shopping are relatively cheaper than buying in off-line shop. On the other hand, product bought from internet shopping might not reliable. Also some internet shopping won’t support after service. Moreover, they might not have enough products to sell. Another type of firm in IT market is branch shops such as Elkor. Elkor is dominating about 60% of Latvia electronic devices. Advantage of this kind of firm is the after service. They sell reliable products and they provide a year warranty. On the other hand, the price of the product is more expensive than other firms. Finally there are small firms which sell electronic devices in a slightly cheaper price. They are managed by individual owner. Generally, the market structures among the small firms are oligopoly. There is no clear domination. There are some problems among small firms. One major problem is that the electronic device producer might not supply products to dealer because firm might not be able to sell the products. In off-line, there are 210 firms in Riga.
2. IT market is a huge market and we can able to determine the number of firms who are willing to join the market by counting the number of barriers that obstacle the new firms. There are about 3 barriers that affect small firms which are willing to join. Those are anti-competitive practices, sunk cost and limit pricing. Three barriers are little compare to other market. As a result, numerous numbers of firms are willing to enter this market. Another aspect that we can look is monopolistic competition. Small firms in the IT market are forming monopolistic competition. Features of monopolistic competition are that the firms are price-taker and also the size of firms is fairly small. Finally, the firms are free to enter and leave the market. The last aspect which was free to enter and leave the market affects the number of firms who are willing to enter the market. This tells the money that new firms lose when they fail is relatively small.
3. a) There are 3 major barriers for new firm to enter the market. The biggest barrier is anti-competitive practices. When small firm starts the business, producers will not supply the products to small firms because small firms might not be able to sell products. As a result, producers will lose the money. On the other hand, big firms such as Elkor will be able to sell products because, they have a good reputation among people and producers believe big firms are capable to sell the products. Due to this problem, small firm such as my firm will face a problem because of not enough supply of products.
b) Limit pricing is another way that we have to overcome. Limit pricing in one of the barrier that big company reduces the price of product to lead small firms to bankrupt and monopolize the market. Big firm such as Elkor will reduce the price to eliminate the market competition. To overcome this problem, small business owner has to be a price taker but it is too risky for small business owner.
c) Final barrier for IT firm is the sunk cost. Sunk cost is the price that company cannot receive back when they withdraw. The most common sunk cost is advertisement. To survive in the competitive market, advertisement is necessary. If the firm starts advertisement but firm starts to withdraw, firm will lose huge amount of money due to advertisement.
4. Our firm is not producing the product. Our aim is receiving products from producers and sells it to customers. If our firm produces the product by ourselves, we might have a secret technology that can benefit our firm. Unfortunately, our job is dealing the existing products that producers produced. All the information of the products is the information numerous people know. Therefore, all the knowledge that we have is the knowledge that other firms have.
Category: IB1 Economics | Views: 1509 | Added by: BJ | Rating: 0.0/0
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