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MGTA01H3 (583)
Chapter 4

MGTA01H3 Chapter 4: business chp 4

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Chapter 4-When Buyers & Sellers Interact-How Markets Work Market: A Bunch of Activities, Not a Place • the word market to management theorists does NOT refer to a physical place or part of town • rather the word “market” refers to the activities that occur in those places • market: the interaction of buyers and sellers, exchanging information about goods and services for sale • the notion of market is an abstract idea (thousands of people exchanging information) • the internet is a market - shoppers are checking our the wares available from a variety of online retailers: comparing prices, features, delivery options, etc. while the retailers are attempting to draw your attention to their site, get you to browse, etc. How Prices Are Set In A Market: • in markets prices are set by buyers and sellers, negotiating • sellers hope to charge as much as they can (max revenue) while buyers are attempting to pay as little as they can • how markets function: 1. A consumer would be in search of a product or service, searchers for one or more vendors 2. A vendor, in search of a sale, tries to highlight the features and benefits of his products 3. Information is exchanged b/w consumer and vendor 4. Prices are negotiated 5. A sale is completed or not • market prices are set by hundreds of buyers and sellers making transactions every minute • i.e. a used textbook would have a “market” price of $30 if that is the price majority of upper year students are selling it for Since Canada is a “market” based economy, the Government of Canada takes a back seat • when it comes to deciding what Canadians choose to need and want • The market system is intended to have several advantages: - entrepreneurs are permitted to start a business - consumers are able to have some choice - sellers are entitled to seek a profit - when buyers and sellers agree, both parties get what they want Identifying Your Customers-Who Is In Your Market? • Target market: a particular group of people who share a number of similarities-for example, age, gender, income location-and who have similar needs and wants and are identified by the seller as being most likely to buy a businesses’ products • businesses must recognize that the vast majority of people will have some reason NOT to buy a product (i.e. vegetarians wont buy meat, bald people don't need shampoo) • demand for a product will vary according to peoples’ age, gender, ethnicity, socio-economic status or geographic location Degrees of Competition-Not All Markets Are The Same Are The Same • degrees of competition: the various combinations of numbers of buyers and sellers, in a market • i.e. some markets have very many sellers and very many buyers while some markets have very many sellers and limited number of buyers • 3 simple cases: - a market with very many sellers - a market with only a small number of sellers - a market with only one seller Perfect Competition-Many Sellers And Lots of Choice • perfect competition: a market characterized by a large number of small sellers. All sellers offer more or less the same products for more or less the same price, and buyers have lots of choice • key element= consumers feel that they have a great deal of choice as to from whom you purchase what you need • one characteristics is that all sellers are said to be “small” (no producers enjoys a large market share) market share: the percentage of an individual firm’s sales relative to the total sales within a • given market • products in a perfectly competitive market should be priced the same (i.e. milk is sold at roughly the same price throughout different stores/vendors) Oligopoly-Few Sellers and Limited Choice: • oligopoly is a market where the products and services are available only from a small number of large suppliers • markets became oligopolies because of the existence of barriers to entry Barrier to entry: the characteristic which makes a business or industry difficult, time- • consuming or expensive to enter, or a product difficult, time consuming or expensive to make Barriers To Entry: • many reasons why barriers to entry exist 1. a few competitors have developed processes or technologies that have dramatically lower their costs 2. economies of scale-difficult to produce certain products that are expensive and difficult to produce (i..e transcontinental railway) •
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