The market price is determined by demand and supply; once the market is imperfectly competitive, one side will dominate the other and gain the pricing power. When the supply side dominates the demand side, it is caused by several factors. Firstly, to achieve the best productivity, a massive size of production is required in certain industries. The energy industry and the food industry are this type of industries. Secondly, some industries require very cutting edge technologies. The military and aerospace industries require the cutting edge technologies and the access to these technologies are also strictly limited and protected by the governments. There are some situations when the demand side dominates the supply side. For example, Apple is a successful company, when it borrows from banks, its loans have the best rating then many banks seek the opportunity to lend to Apple and Apple can negotiate the interests.
However, the demand and supply relationship is still very clear, some cases do not have such clear relationship. Sometimes, some services are compulsory and do not have some direct links between the demand side and the supply. These are often seen in some public sectors, sometimes they are not often seen as markets, such as the tax system, the government could be seen as the demand side and the general public are the suppliers. Sometimes the demand-supply relationship is not clear as the companies are making profits from elsewhere, so the supply side makes the products free. For example, the users of Google and Google have the demand-supply relationship and the searching service provided by Google is free. In addition, such relationship is reversed in some ways. Google is making profits by selling advertise, in order to sell more, Google has to maintain a large size of its users, then Google demands the size of its users, and people supply the size.
No comments:
Post a Comment