For this final project, you will write a 6- to 10-page paper in which you research and analyze the market for a product or service produced by the company you work for, or by some other company that you know well. The paper will need to be in APA format. Throughout the paper, you will need to provide careful economic analysis of your chosen market using the economics concepts from the course. As a starting point, you should expect your audience to be familiar with these concepts, so there is no need to define basic concepts. Instead, demonstrate your understanding of the concepts by applying them competently.
You may support your analysis with no more than two figures, graphs, or tables (total) placed in the appendix. Do not include these in your paper unless you also write about them extensively in the main body. Any time you make a specific statement about the market or company, you will need to defend it with actual evidence. To accomplish this, you will need to cite that evidence using the APA in-text citation convention within the body of your paper as well as using the APA end-of-text citation convention in your references section.
There are a variety of issues that you could analyze. Choose three or four of the following and provide a thorough analysis. Your goal should be to teach us about this company or industry. Your final submission must not simply be a Wikipedia-quality report—the emphasis must be on the economic analysis and readers should be able to learn something not easily discovered. Your final submission should be a fourth or fifth draft, not the first draft of what you’ve written.
Issues you may choose to review in depth:
- What is the market? Who are the major competitors with close substitutes? How much market power does your particular company hold in this market? What barriers to entry reinforce your company’s market power? If your company lacks market power, what are the major obstacles to gaining market power? Are rival firms doing largely the same thing or is there substantial product differentiation? Does product differentiation include related goods or services that are sold alongside your feature product?
- What is the general market structure for your industry? Is it best thought of as a monopoly, oligopoly, or monopolistic competition? What characteristics suggest this is one market or another? Is the price high enough to cover costs and do there appear to be above-normal profits? Is the market structure changing over time or expected to? What are the important barriers to entry?
- What are the two or three major determinants of demand in the market? What are the relevant controllable and uncontrollable factors? Have the most important factors changed at all in recent years? Has anyone estimated price elasticity of demand for your product or the larger product categories? If not, see if you can collect some price and quantity points and perform your own analysis (holding all else besides price and quantity constant). If this isn’t possible, describe which of the major demand shifters are the most dominant—tell us which direction demand shifts and how far. There is no need to draw generic demand and supply curves—just explain thoroughly in words and leave it up to the reader to recreate that simple diagram
- What is the relevant cost structure for the industry and for your firm? How does your company avoid the sunk-cost fallacy and hidden-cost fallacy? What labor market skill sets are needed for your company and are there readily available workers to hire? What does the market for important inputs look like? Does your company have many or few options from which to source important inputs? Is the hold-up problem a concern? Are there economies of scale? Are there economies of scope or diseconomies of scope? Are there large fixed costs? How do the variable costs compare to the fixed costs in terms of relative size?
- Is your firm able to practice price discrimination? What form of price discrimination is most relevant in this industry and are there other opportunities that your firm has not yet taken, and why? Remember, there is a difference between price differences caused by cost differences! If price discrimination is possible, how is your firm able to accomplish this effectively? Are there opportunities to enhance your firm’s ability to practice price discrimination?
- Does your firm produce a product that is a substitute or a complement to goods or services produced by other firms? What implications does this have for the pricing decisions pertaining to your firm’s goods or services? How are your firm’s own products or services related to each other? Are they substitutes or complements? In what way does this underlying structure influence the possible pricing decisions for these products?
- What is the influence of government on your company or market? Is there a heavy tax burden? Are there subsidies or price controls? Are there are other regulations that are relevant to the functioning of the market? This could include environmental regulations, taxes, tariffs, minimum wages, and so on. Describe the specific features of the regulation and their impact on your company or industry. Provide estimates of the impact on the market (e.g., prices, costs, or employment). Has this left room for businesses to exploit the inefficiency to create wealth?
- What is the role of asymmetric information experienced by your company or in your industry? Are there issues of adverse selection and/or moral hazard in your company or market? Are incentives aligned between management and workers? Are incentives aligned between different divisions within the company, if applicable? Is there shirking of problems or other activities that self-interested agents pursue to the detriment of the principal? Clarify the relevant actors and the source of the problem as well as the results. How are these issues addressed, if at all?
- Is there an application of the prisoner’s dilemma in your industry? Or are other game models more relevant? Should we think of strategic interactions as simultaneous or sequential? Clearly describe the relevant players, their strategies, and payoffs. What is each firm’s dominant strategy? What happens when each uses their nondominant strategy? What happens in equilibrium? What legal paths are there for the industry to avoid the Nash equilibrium that results from the game played once? Is there a repeated game structure? Does reputation matter?
Parameters: The paper should be 6 to 10 pages and use APA format, standard font and font size, 1-inch margins, and double spacing. The cover page, reference page, and appendix do not count toward the page count.
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