Chapter-5Managing Market Power

Group Name- Success Hunter

Group No- 5 Name ID

MD. ABUL KASHEM 106

MD. AHIDUZZAMAN 107

MD. ZIAUL HUQ 130

NIMAI KUNDU 131

MD. ASHKUR RAHMAN 137

MD. NOMAN HOSSAIN 141

MD. SAHED ALI 155

G.M. SORWAR HOSSAIN 162

Meaning of market power

Market power is the power held by a firm over price and the power to subdue competitors.

Market power is the ability to control the terms and condition of exchange.

Market power is the ability to raise prices without losing all one’s customer to competitors.

Importance of Market power

Infinite Buyers/ Infinite Sellers. Zero Entry/ Exit Barriers. Perfect Information. Zero Transaction Code. Profit Maximization. Homogeneous Products. Efficiency of Perfect market. Existence of a general equilibrium.

What is monopoly market

Monopoly is the situation in which a single company owners all or nearly all of the markets.

In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.

Characteristics of Monopoly

Price control. Increased scope for mergers. Legal sanctions. Predatory pricing. Price elasticity. Lack of innovation. Lack of competitor. Monopoly litigation.

Competitive Market and its types

A market in which there are enough small buyers and sellers of an identical product that no single buyers or seller is sufficiently large to affect the market price.

Types:

(1)Monopolistic Competition.

(2) Oligopoly.

Characteristics of Competitive Market

Many buyers and sellers. Standard product. Easy entry and exit.

Arguments for monopoly

Advantage of Economic of scale. Advantage regarding Research and

Development. Advantage regarding Extension of

Consumption. Trade Cycle. Low or no Advertising Cost.

Arguments for monopoly

Regarding extension of consumption Trade Cycle Advantage of Economics of scale. Advantage regarding research and

development. Advantage Low or advertising cost

Arguments against Monopoly

Disadvantage regarding redistribution of income Allocate inefficiency Lack of efficiency. Setting up more prices. Produced goods may be of low quality Political unfairness Hamper the advantage of technology Reduced employment opportunities The price of material is always poor abnormal profit

Arguments for Competitive Market

Market power. Product Differentiation Number of Competitors. Barriers to entry. Elasticity of Demand. Excess Profits. Profit Maximization Price quantity and profit issues.

Arguments against Competitive Market

Profit is Main Motto. Unhealthy Competition. Excessive product differentiation. Free excess in the market. High cost of advertisement Cheating.

Threats for Monopoly Breaking up monopolies. Business ethics in the face of monopolistic

market Law

Threats for Competitive Market

Easy Access. Government intervention. Homogenous products. Global market place Syndicate. Customer Choice. Political preference

Present Market Power of Bangladesh

The economy of Bangladesh is constituted by that of a developing country. Its per capita income in 2008was est. us$1500(adjusted by purchasing power parity) significantly lower than India, Pakistan , both which are also lower than the world average of $10.497According to the gradation by the International Monetary Fund, Bangladesh ranked as the 48th largest economy in the world in 2008, with a gross domestic product of US$224.889 billion. The has grown at the of 6-7 percent over the past few years.

Agriculture• Rice and Jute are the primary crops • Tea , vegetables are assuming greater importance.

Manufacturing & Industry• 1.5 million were employed in garments sector.• Bangladesh has overtaken India in apparel exports in 2009.• In 2001-2002.garments export was 52 percent of total export.

Textile sector• It includes knitwear and ready-made garments along with specialized

textile product.• It is the nations number one export earner.• Bangladesh is 3rd in world textile export.

Fiscal Year Total Export Total Import Foreign Remittance Earnings

2007-2008 $14.11b $25.205b $8.9b

2008-2009 $15.56b $22.00b $9.68b

2009-2010 $17.6b N/A $10.87b

Foreign Remittance

YearYear Gross Domestic Gross Domestic ProductProduct

U.S Dollar U.S Dollar ExchangeExchange

Inflation Inflation Index(2000Index(2000=100)=100)

Per Capita Per Capita Income as % Income as % of USAof USA

19801980 250.300250.300 16.10TK16.10TK 2020 1.791.79

19851985 597.318597.318 31.00TK31.00TK 3636 1.191.19

19901990 1.054.2341.054.234 35.79TK35.79TK 5858 1.161.16

19951995 1.594.2101.594.210 40.27TK40.27TK 7878 1.121.12

20002000 2.453.1602.453.160 52.14TK52.14TK 100100 0.970.97

20052005 3.913.3343.913.334 63.92TK63.92TK 126126 0.950.95

20082008 5.003.4385.003.438 68.65TK68.65TK 147147

Macro- economic Trend

Merger refers to the combining of two or more entities into one, through acquisition or a pooling of interest.

Merger

• To perform better• To reduce competition• To get momentum• To change their position in the market• To use competitive advantages• Greater value generation• Economics of scale• Market Share• Cost efficiency• Tax gains

Causes of Merger

Importance of Merger

Administrative benefits• Financial leveraging• To improve profitability• To increase EPS • To increase higher competitiveness• Introduce new product in the market• To get distinctive advantages• To get monopolistic advantages• Positioning• Skilled human resource

Dangers of Mergers

• Age of firms• Size of firms• Technology• Management style• Type of employees• Legal expenses• Cost of takeover• Bad impression• Decline price in equity price & investment value• Suppressing of competing business

Acquisition

An acquisition is also known as a takeover or a buyout, is the buying of one country by another.

Causes of Acquisition

• To expand activities• To acquire new business• Good image• Demand in the market• Reduction of cost • Increase depth of product line• Limiting opportunities for key customer• Public relation• Keeping present management team busy

Importance of Acquisition

• Strong market position

• Complementary skill set

• Improved profit

• Geographic expansion

• Access to new customer

• Cost reduction

Danger of Acquisition

• Concealed problem• Costs of acquisition • Inadequate valuation of firm• Integration difficulties• Style of management• Large or extraordinary debt• Inability to achieve synergy • Unqualified human resource• Volume of activities

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