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Econ 2

This document discusses three sources of rivalry that exist in economic transactions and markets: consumer-producer rivalry, consumer-consumer rivalry, and producer-producer rivalry. Consumer-producer rivalry occurs between consumers attempting to negotiate low prices and producers attempting to negotiate high prices. Consumer-consumer rivalry arises due to the economic doctrine of scarcity, where consumers compete for limited goods. Producer-producer rivalry only functions when multiple sellers compete in a marketplace, competing for customers. The document notes that when either side is disadvantaged in the market process, they may attempt to induce government intervention.

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Dagger Santin
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118 views

Econ 2

This document discusses three sources of rivalry that exist in economic transactions and markets: consumer-producer rivalry, consumer-consumer rivalry, and producer-producer rivalry. Consumer-producer rivalry occurs between consumers attempting to negotiate low prices and producers attempting to negotiate high prices. Consumer-consumer rivalry arises due to the economic doctrine of scarcity, where consumers compete for limited goods. Producer-producer rivalry only functions when multiple sellers compete in a marketplace, competing for customers. The document notes that when either side is disadvantaged in the market process, they may attempt to induce government intervention.

Uploaded by

Dagger Santin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MANAGERIAL ECONOMICS AND BUSINESS STRATEGY

MICHAEL R. BAYE

Understand Markets
In studying microeconomics in general, and managerial economics in particular, it
is important to bear in mind that there are two sides to every transaction in a mar
ket: For every buyer of a good there is a corresponding seller. The final outcome of
the market process, then, depends on the relative power of buyers and sellers in the
marketplace. The power, or bargaining position, of consumers and producers in the
market is limited by three sources of rivalry that exist in economic transactions:
consumer–producer rivalry, consumer–consumer rivalry, and producer–producer
rivalry. Each form of rivalry serves as a disciplining device to guide the market
process, and each affects different markets to a different extent. Thus, your ability
as a manager to meet performance objectives will depend on the extent to which
your product is affected by these sources of rivalry.

Consumer–producer rivalry occurs because of the competing interests of con


sumers and producers. Consumers attempt to negotiate or locate low prices, while
producers attempt to negotiate high prices. In a very loose sense, consumers
attempt to “rip off” producers, and producers attempt to “rip off” consumers. Of
course, there are limits to the ability of these parties to achieve their goals. If a con
sumer offers a price that is too low, the producer will refuse to sell the product to
the consumer. Similarly, if the producer asks a price that exceeds the consumer’s
valuation of a good, the consumer will refuse to purchase the good. These two
forces provide a natural check and balance on the market process even in markets in
which the product is offered by a single firm (a monopolist).

A second source of rivalry that guides the market process occurs among consumers.
Consumer–consumer rivalry reduces the negotiating power of consumers in the
marketplace. It arises because of the economic doctrine of scarcity. When limited
quantities of goods are available, consumers will compete with one another for the
right to purchase the available goods. Consumers who are willing to pay the high
est prices for the scarce goods will outbid other consumers for the right to consume
the goods. Once again, this source of rivalry is present even in markets in which a
single firm is selling a product. A good example of consumer–consumer rivalry is
an auction, a topic we will examine in detail in Chapter 12.

A third source of rivalry in the marketplace is producer–producer rivalry. Unlike


the other forms of rivalry, this disciplining device functions only when multiple
sellers of a product compete in the marketplace. Given that customers are scarce,
producers compete with one another for the right to service the customers available.
Those firms that offer the best-quality product at the lowest price earn the right to
serve the customers.

Government and the Market


When agents on either side of the market find themselves disadvantaged in the mar
ket process, they frequently attempt to induce government to intervene on their
behalf. For example, the market for electricity in most towns is characterized by a
sole local supplier of electricity, and thus there is no producer–producer rivalry.
Consumer groups may initiate action by a public utility commission to limit the
power of utilities in setting prices. Similarly, producers may lobby for government

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