Managerial Economics: Competition, Demand, and Product Life Cycle

This report delves into the core principles of managerial economics, examining the interplay of market competition, supply and demand dynamics, and consumer preferences. It begins by analyzing cases of anti-competitive practices, such as price-fixing in the tuna industry, and the implications of antitrust violations. The report then explores the impact of supply and demand on market prices, using examples from the Swiss luxury watch market in China and the global oil market. Finally, it discusses consumer behavior and product life cycles, illustrating how companies like Apple adapt strategies based on product stages. The report incorporates real-world examples and case studies to provide a comprehensive understanding of managerial economics concepts and their practical applications in business decision-making.

MANAGERIAL ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
IMPORTANCE OF COMPETITION IN MARKETS....................................................................1
1...................................................................................................................................................1
2...................................................................................................................................................2
3...................................................................................................................................................2
4...................................................................................................................................................2
5...................................................................................................................................................3
SUPPLY AND DEMAND IN THE MARKET AND PRICES......................................................3
6...................................................................................................................................................3
7...................................................................................................................................................3
CONSUMER PREFERENCES AND PRODUCTS.......................................................................4
8...................................................................................................................................................4
REFERENCE..................................................................................................................................6

INTRODUCTION
Managerial economies are the bridge between manager task or their responsibility and
the economy of company including its demand and supply. So this is that branch of economies
which deals with applying all theories, concepts, models and tools of economies for solving
practical problems of business.
IMPORTANCE OF COMPETITION IN MARKETS
1.
Within the case of StarKist and Bumble Bee where both were found guilty of price fixing
of canned tuna which was exposed by Chicken of the sea. The anti-competitive practice which
both companies adopted is those which are done for reducing competition within market. Both of
them included price fixing which means companies are making collusion for setting price
effectively dismantling the free market. Price fixing is that agreement where two competitors in
market will decided to sell or buy product at same price in way of maintain price and controlling
demand and supply as well (Bernanke, Antonovics and Frank, 2015). Within USA this price
fixing is prosecuted as the criminal offense under the section 1 of Sherman Antitrust Act all
cases pertaining to this will be handled by US Department of Justices. So in the given case also
StarKist and Bumble were determine of using unfair means of trade by undertaking anti-
competitive practice.
The price of raw tuna in USA is about $11-12 per kg and USA is the highest importer of
fresh air flown tuna in volume. While the price of canned tuna for 4 pack of Bumble Bee white
albacore will be $5.98 which is $1.50 for one can. While that of StarKist chunk light tuna is
$3.27 which is about 82 oz per can. So it could be noticed that the price of raw tuna to higher as
compared to canned tuna and this shows that demand of raw tuna is lower as compared to that of
canned tuna. As the raw tuna is input for production of canned tuna this shows that if price of
raw tuna will increase then price of canned tuna will also increase. But while if its price is
decreasing then price of canned tuna will decrease as well
The merger which was taking place between Bumble Bee and Chicken of the sea was
called off by the USA Department of Justice as they considered it as harmful for other
competitors in market like that of StarKist. Chicken of the sea which is subsidiary of biggest
seafood products company Thai Union Group called off the deal between both the companies.
As due to this merger there could be domination of group over North America seafood product
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business which could be hitting rivalry to about $8 billion in 2020 (Thai Union Group scraps
$1.5 bln plan to buy Bumble Bee, 2018). Following in same year 2015 Chicken of the sea was
sued for accuse of colluding with StarKist and Bumble Bee foods which was done in way to fix
up price of canned tuna so that other competition could be avoided.
There is always harmful impact on customer due to this collusion or price fixing this is
the reason why it is considered to as illegal and charged high fine to companies. For this cartel is
been made between parties whose goal is to increase profits with help of price fixing and limiting
the supply for products for customers (Cannon and Hillebrandt, 2016). So for customers there
would be less amount of products available in market that too at increased of higher price
making competition tougher and illegal as well.
2.
As per the report of Australia Competition and Consumer Commission (ACCC) it was
noted that the cost of sending money oversea from Australia is 11% higher as compared to other
G20 countries (Antitrust, 2018). This created complaint among several suppliers, banks and
number of online transfer companies. It was further included that cost of sending money abroad
from Australia is 40% higher than USA and 13% higher than UK. So this information played
very important role for completing the report.
These largest banks include Commonwealth Bank, National Australia Bank, Westpac and
ANZ while the 3 largest online transfer companies are Western Union, Travelex and PayPal. As
they were charging 4-5% higher exchange rate mark up on foreign currency transfer which is
a$32 per transaction.
3.
European Competition Law is that law under which is promoting the maintenance of
competition into EU with use of anti-competitive tool. Under this they ensure that no 2-3
companies are making any monopoly or cartel that will be harmful for customers.
4.
In 2017 EU fined Google for Android antitrust violations as it was found out that
smartphone manufacturer pre-installed Google search and browsing app into in about 80% of
devices with use of Android operating system (Fort, 2015). This was done for marking as
dominance of this search engine among all smartphone companies, increasing rivalry and this is
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considered to as illegal under antitrust rules. This was considered to as very illegal behaviour by
Google was fined huge amount as the case is of 2011.
Then Google applied against this case after imposition fine of about £2.2 billion as EU
found that Google is doing this for proving its dominance search engine market. While under this
Google was taking into confidence
5.
The imposed record penalty on Google by EU is correct allegations as it was imposing its
domination over the market which is termed to as serious illegal behaviour (Hill, 2016). This
would be hindering competition and having negative impact on customers as they would paying
more to major smartphone companies in respect of this.
While on other hand Google defence is also correct as there are no such direct
competitors of it in market this is the reason as why it is having domination into the market and
they are also providing $7 billion revenue to developers and content publishers.
SUPPLY AND DEMAND IN THE MARKET AND PRICES
6.
China is very huge market for Swiss luxury watch markers as they are consuming half of
the manufacturing products. China is having 6.3% import from major Swiss watch makers thus
this shows that there is immense importance of Chinese consumers.
The new policy of Chinese government for limiting their gifting of watches is in way of
greasing up of wheels of Chinese bureaucracy and business and corresponding impact on
demand of Swiss watches in Chinese market is there due to this (China’s Watch Market, 2018).
This was done in way of reducing corruption and resulted into declining demand.
In way of supporting price of products it is very much important that Richemont and
other suppliers of luxury watch are lowering down their cost of products. Thus this will also be
helping in protecting profit margin and buttress perceived value of timepiece that is costing more
than a new car.
7.
The production of oil in USA is not able to meet the demand of domestic need also which
is allowing USA to look into new supply from international market.
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While Saudi Arabia is supplying oil to India which is included that it is the largest
producer and supplier of oil (Hirschey, 2016). As it was included that Saudi Arabia is supplying
48% of total crude oil to other parts of world.
Iraq is having 12% of the total supply of oil to other parts of world with producing about
2 billion barrel of oil per year.
On the other hand oil production capacity of Iran is declining over time as oil is requiring
expensive equipment which is slowing down to deploy and expensive to be maintained.
Russia is producing 10.83 million barrel of oil per day which is about 12% and is also
sharing highest in terms of exports.
CONSUMER PREFERENCES AND PRODUCTS
8.
The product life cycle includes 4 stages which are discussed below:
Figure 1: Product life cycle
[Source: Product Life Cycle Stages, 2018]
Introduction stage- This is the starting stage which includes launching of new product into
market.
Growth stage- At this stage profits and sales of company’s product will be very much high and
this will be at growing stage with use of economies of scale (Stein, 2015).
Maturity stage- The product is very well established in market with aim of maintaining market
share.
Decline stage- This is the declining stage at which the product is shrinking or lowering down and
is not able to stand with the competition.
4

The step taken by Apple to extend the Product life cycle in Macs will be related to only
introduction stage as product was not able to get itself stable within the market (William and
Stephen, 2016). While for iPhone it is always at Maturity stage only for iPad it is at declining
stage as the demand for it in market is decreasing and lastly for iWatches it is at growth stage as
its demand is increasing.
For Macs they are using pricing for market penetration, for iPhone Apple is using
premium price, for iPad it is using price skimming and for iWatch they are using Differentiation
strategy (Apple's premium pricing strategy, 2018).
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REFERENCE
Books and Journals:
Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-Hill
Higher Education.
Cannon, J. and Hillebrandt, P.M. eds., 2016. The management of construction firms: Aspects of
theory. Springer.
Fort, R., 2015. Managerial objectives: a retrospective on utility maximization in pro team
sports. Scottish Journal of Political Economy, 62(1), pp.75-89.
Hill, S., 2016. Managerial economics: the analysis of business decisions. Macmillan
International Higher Education.
Hirschey, M., 2016. Managerial economics. Cengage Learning.
Stein, J., 2015. MBA8240-S55. Managerial Economics. F15. Stein, John.
William, F.S. and Stephen, G.M., 2016. Managerial Economics.
Online:
Antitrust. 2018. [Online]. Accessed through:
<http://ec.europa.eu/competition/antitrust/overview_en.html>.
Apple's premium pricing strategy. 2018. [Online]. Accessed through:
<https://marketrealist.com/2014/02/apples-premium-pricing-strategy-product-
differentiation>.
China’s Watch Market. 2018. [Online]. Accessed through: <http://china-trade-
research.hktdc.com/business-news/article/China-Consumer-Market/China-s-Watch-
Market/ccm/en/1/1X000000/1X002MSE.htm>.
Product Life Cycle Stages. 2018. [Online]. Accessed through:
<http://productlifecyclestages.com/>.
Thai Union Group scraps $1.5 bln plan to buy Bumble Bee. 2018. [Online]. Accessed through:
<https://www.cnbc.com/2015/12/04/chicken-of-the-sea-and-bumble-bee-foods-ditch-
merger-on-doj-concerns.html>.
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