Group 4: Joan Abarca Generosa Bacani Daniel Coquinco Michelle Germano Danielle Reyes

 Competitive Price Searcher Market vs.

Price Taker Market  Real Estate Industry in the Philippines  Monopolistic Competition  Charact ristics  Comparison of different market str ct res  Profit aximization in the Short r n and Long r n Problems with monopolisticall competitive firms Price iscrimination  Exercises

Price Searcher

arket

Price Taker

arket

Low entry barriers ensures that these markets are competitive Firms that face a downward sloping demand curve product differentiation Monopolistic Competition with low entry barriers

Large number of firms exist in the market Firms produce identical products No barriers limit the entry and exit of firms in the market Each firm supplies a small portion of a total amount supplied in the market

 Real Estate Industry (Philippines)

 

The Real Estate industry of the Philippines is one of the most powerful property industries in Asia. Asia. Due to recent economic trends, Philippines has become a more in-demand market for real estate opportunities, more inspecifically, the rise of demands for residential housing and office spaces. spaces. The promising outlook for the residential sector of the Philippine Real Estate industry is fuelled by rising incomes due to the steady rise in the Philippine economy for the past several years, as well as massive interest among overseas Filipinos wanting to establish permanent or temporary residence in the country of their birth. birth. Most house purchases are done either in cash or through prepre-selling, as the financial market is relatively undeveloped. undeveloped.

Company Name

Description

Parent/Hol ding Company

Latest Project

SM Development Corporation

fast-growing residential property SM developer focusing on the Investment premium middle market, Corporation expertly balancing key housing factors of quality, style, durability, and affordability leading provider of affordable homes to Filipino families in ideal communities that secure their future

SM My Place

Avida Land Corporation Robinsons Land Corporation

Ayala Land, Inc.

Avida Towers Cebu

one of the country's leading real JG Summit estate companies, is engaged in Holdings the development and operation of shopping malls and hotels, mixed-use properties, office buildings, residential condominiums, as well as land and residential housing projects in key cities and other urban areas nationwide

Robinsons Luxuria s Sonata Private Residences

Other examples:
Restaurants Plumbers/electricians/local builders Private schools Plant hire firms Insurance brokers Health clubs Hairdressers Funeral directors Estate agents Damp proofing control firms

Characteristics:
Large number of firms in the industr
 each firm has a small proportion of the market share

Products/goods are differentiated

 each firm faces a downward-sloping demand curve downwardno perfect substitute of other firms can be found for a product by one firm.

Firms may have some element of control over price like in monopoly
 price setter/price searcher  independent decision making firms don't take the reaction of rivals into account when choosing prices and sales targets

Competition on Quality and arketing Quality is design, reliability, service provided to buyer and ease of
access to product Marketing firm must market = promotion, distribution, packaging

Entry and exit from the industry is relatively easy

 few barriers to entry and exit

Characteristics
Number of firms Products Pricing power Free entry Demand Elasticity

Perfect Monopolistic Oligopoly Competition Competition

Infinite many Few

Monopoly
one

homogenous

Differentiated

either

unique

Price taker

Price searcher

Price searcher Limited

Price searcher

yes

Yes

no

Perfectly elastic Highly elastic in the long run

Depends on Relatively pricing inelastic strategy

Profit Maximization:
y The profit-maximizing level of output is a profitproduction level that achieves the greatest level of economic profit given existing market conditions and the firm s production cost. For a monopolistically competitive firm, this entails adjusting the price and corresponding production level to achieve the desired match between total revenue and total cost.

 MC =

MR
A monopolistically competitive firm suffering short-run losses
MC Losses

A monopolistically competitive firm earning short-run profits

MC Profits ATC Po

ATC P1

MC = MR Demand

MC = MR

Demand Qo MR Q1 MR

In the short run, firms may make positive, run,

zero or negative profits. profits.

 In the long run, entry and exit are both run,

possible. This result to firms profits being equal to zero. zero.

MC Profits MC Losses

ATC

ATC

Po

P1

MC = MR MC = MR Demand D D Demand

Qo MR

Q1 MR

 INEFFICIENCY ADVERTISING

CREATION OF

RAND NAMES

There are two sources of inefficiency in the MC market structure:

at its optimum output the firm charges a price that exceeds marginal costs, the MC firm maximizes profits where MR = MC


The monopoly power possessed by an MC firm means that at its profit maximizing level of production there will be a net loss of consumer and surplus for producer. the MC firm's profit maximizing output is less than the output associated with minimum average cost.

that MC firms operate with excess capacity



MONOPOLISTIC COMPETITION VERSUS PERFECT COMPETITION

Monopolistic Perfect

ADVERTISING AND MONOPOLISTIC COMPETITION

Perfectly competitive firms have no incentive to advertise, but monopolistic competitors do The goals of advertising are to increase demand (shift demand curve to the right) and make demand more inelastic Advertising increases ATC, shifting the ATC curve up

BRAND NAME
A brand

name is valuable to a firm; it makes the demand less elastic and can enable the firm to earn higher profits. a positive experience with a good, the price elasticity of demand for that good typically decreases the consumer becomes loyal to the product.

Once a consumer has had

A practice whereby a seller charges different consumers different prices for the same product or service Price searchers gain: 1. identify and separate at least two groups with differing elasticities of demand, and 2. prevent those who buy at the low price from reselling to the customers charged higher prices

 Examples:

Airlines: Class of service / advance seat sale Retail: Discount coupons, volume pricing Telecoms: Off-peak rates OffHotels: Off-season rates OffEducation: Financial aid Senior citizen / Student discounts Frequent customer incentives

Seller charges a single price

Seller uses price discrimination

less elastic demand group

Net operating revenue: $30,000

Source: Microeconomics, Gwartney, Stroup, et al. (11th ed.) 2006

Net operating revenue: $36,000

 Residential condos

Payment terms Freebies

Africa Land owns a real estate developer that sells condominium units in an open, price-searcher market. To pricemarket. develop her pricing strategy, Aleq hired an economist to estimate her demand curve. Columns (1) and (2) of the curve. following chart provide the data for the expected weekly quantity demanded for Aleqs condominium units at alternative prices. Aleqs marginal (and average) cost of prices. supplying each condominium unit is constant at Php. Php. 5,000,000 per condominium unit no matter how many unit 000, she sells per week in this range. This cost includes all range. opportunity costs and represents the economic cost per condominium unit. unit.

A. Find Aleqs economic profits at each alternative price by calculating the difference between total revenue and total cost. cost. B. Find Aleqs marginal revenue and marginal cost from the sale of each additional condominium unit. unit. C. If Aleq wants to maximize her profits, what price should she charge per condominium unit? D. How many condominium units will Aleq sell per week at the profit-maximizing price? profitE. What will Aleqs profits be per week at this price and sales volume?

Thank you!