Analysis Presentation: Market Structure Analysis Approach

Market Structure Analysis Approach Presentation 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 1) Market Share and CR4 Market share is the percentage of the total sales of a target market that a company earns (market potential divided by total sales). Calculation of market share of each marketing institution: Institution Marketing Absorbable Production Capacity of a Market Area Concentration ratio Market share (%) 1 A a/x (a/x)*100 2 B b/x (b/x)*100 ... ... ... ... n M m/x (m/x)*100 Total a+b+...+m = x 1 100 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 1) Market Share and CR4 Market Share Criteria: (1) Pure monopoly, when a firm owns 100% of the market share market (2) Dominant company, if it has 80-100% of the market share and without strong competitors. 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 1) Market Share and CR4 CR4 (Concentration Ratio for Biggest Four) is an analytical tool to determine the degree of concentration of the four largest buyers of a market area, so that it can be known in general terms the balance of the strength of the bargaining position of farmers (sellers) against traders (buyers). Formula: CR4 = Number of concentrations of 4 (four) companies that have largest concentration ratio. = 𝑀𝑆1+𝑀𝑆2+𝑀𝑆3+𝑀𝑆4 𝑀𝑆 ∗ 100% Where MS = Market share 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 1) Market Share and CR4 CR4 Criteria: 1. CR4 < 0.4 then the market structure is perfect competition (competitive) or monopolistic competition (monopolistic competition needs to be seen whether there is product differentiation or not) 2. 0.4 < CR4 < 0.8 then the market structure is oligopoly/oligosopni (often when the CR4 value is above 60-80% it is called tight oligopoly and the CR4 value between above 40-60% is called loose oligopoly). 3. CR4 > 0.8 then the market structure tends to be monopoly/monopsony. 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 2) . Hirschman Herfindahl Index (HHI) The HHI aims to determine the degree of concentration of buyers from a market area, so that a general picture of the balance of the strength of the bargaining position of farmers (sellers) against traders (buyers) can be known. Formula: IHH = (𝑆1)2 + (𝑆2)2 +...+ (𝑆𝑛)2 Description: a : IHH: Hirschman Herfindahl Index n : Number of traders in a product market area Si: Share of commodity purchases from the i-th trader (i = 1,2,3,...,n) Criteria: IH = 1, then the market leads to monopoly/monosopni IH = 0, then the market leads to perfect competition 0 < IH < 1, then the market leads to oligopoly/oligosopni 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 3) . Level of Product Differentiation ⮚ Product differentiation analysis can be known by looking at whether the product is the same or slightly different but sold under a brand name. which is different. ⮚ Product differentiation can be an obstacle for other entrepreneurs to enter the market. ⮚ Competition will run compare goods (homogeneous product) perfect if that one with buyers goods . can . 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 4) . Market Entry Barriers ⮚ Market entry barriers are anything that prevents new competitors from entering the market, thereby increasing the power of firms. production which are existing company. ⮚ Barriers entry market can in the form of costs high, level of technology or regulations that are enforced so that new players it becomes difficult to be a seller/buyer. Form competition based on several categories, including: barriers to entry market divided in 1. Perfect competition, occurs when it is easy for competitors to enter the market or free to enter the market. 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach 5) . Market Information Level ⮚ An efficient marketing system requires that market actors, both producer farmers and marketing institutions, are able to master market information, so they know when and where to enter the right market, especially for perfectly competitive markets. ⮚ Level of knowledge market often noticed through information on prices, technology, etc. ⮚ If informationabout compete perfectly. price easy obtained, then market 2. Approaches in Market Structure, Behavior, and Performance Analysis ❑ Market Structure Approach Determining Market Structure Unknown: No. Trader Collector Cabbage Purchase Volume (Kg) 1 1 60,000 2 2 60,000 3 3 60,000 4 4 48,000 5 5 48,000 6 6 36,000 7 7 36,000 8 8 36,000 Total 8 384,000 2. Approaches in Market Structure, Behavior, and Performance Analysis Determining Market Structure Market Share Value Concentratio n Ratio (%) 0.1562 15.62 Cumulative Ratio Concentration (%) 15.62 0.1562 15.62 31.24 0.1562 15.62 46.86 0.1250 12.50 59.36 0.1250 12.50 71.86 0.0938 9.38 81.24 0.0938 9.38 90.62 0.0938 9.38 100.00 100 100 HHI = (𝑆1)2 + (𝑆2)2 +...+ (𝑆8)2 = (0.1562) + (0.1562) + (0.1562) + (0.1562)2222 (0.1250)2 +(0.1250)2 +(0.0938)2 + (0.0938)2 = 0.131 Based on the analysis: CR4 = 59.36% 🡪 Loose oligopoly HHI = 1.31 🡪 Oligopoly 2. Approaches in Market Structure, Behavior, and Performance Analysis ⮚ Market behavior according to Bain refers to a pattern of behavior companies that show how to adapt or adjust with the market where they act as sellers or buyers. ⮚ Market behavior can be seen from pricing practices, characteristics products and institutions of each marketing organization involved in marketing. ⮚ Market behavior can also be seen from: a) Whether or not there are collusive practices in terms of determining prices. b) Strategic behavior carried out by producers in the face of existing or newly emerging competitors in the market (product strategy, promotion strategy). c) The role of advertisement and research institutions and development. 2. Approaches in Market Structure, Behavior, and Performance Analysis ⮚ Descriptive market behavior can be seen from: - Sales and purchase practices - Pricing and payment system For example: Coffee marketing in Bungin Sub-district, Enrekang Regency is known to be oligopsony (with CR4 < 80%). Marketing institutions involved: coffee farmers, middlemen, and wholesalers. Price determination at the farm level, which determines the price is the buyer (in this case, middlemen), leaving farmers as price takers. Price determination at the middleman level, carried out with a bargaining system between middlemen and large traders. Likewise, price determination at the large trader level is carried out by a bargaining system. 2. Approaches in Market Structure, Behavior, and Performance Analysis 1) Analysis of Market Behavior in Pricing a. The correlation coefficient shows the extent to which the price formation of a commodity at one level of the marketing institution is influenced by prices at other levels of the institution. Correlation coefficient to see the closeness the relationship between farm-gate prices and consumer-gate prices. Description: r = Correlation of prices at the consumer level and prices at the farm level n = Number of Samples Xi = Price at the final consumer level Yi = Paddy price at the farm level 2. Approaches in Market Structure, Behavior, and Performance ❑ Market Conduct Approach Correlation Coefficient Criteria: • If the correlation coefficient (r) is close to one, then the price relationship at the two market levels is very close and it can be said that the market is perfectly competitive. • Conversely, if the correlation coefficient (r) is close to zero, the price relationship at the two market levels is less close and it can be said that the market is imperfectly competitive. 2. Approaches in Market Structure, Behavior, and Performance 1) Market Behavior Analysis in Pricing b. Transmission Elasticity Price transmission analysis will provide information on how vertically integrated the market is. That is, how price changes that occur at the consumer level are transmitted to the producer level. Formula: Et = 𝑑𝑃𝑓 𝑑𝑃𝑟 . 𝑃𝑟 𝑃𝑓 Et = 1 🡪 there is marketing efficiency If Et is closer to 1, it indicates competitive market behavior. perfect Conversely, if Et is getting less than 1 then it shows behavior on the imperfectly competitive market 2. Approaches in Market Structure, Behavior, and Performance 2). Relationship between Marketing Institutions (Market Institutional System) - Channel Marketing (Number of institutions marketing institutions that involved, Formation of selling price and buying price at each level) Example: Available 3 types channels District Tombolopao marketing channels potato at (1) Marketing Channel I: Potato Farmer 🡪 Consumer (2) ChannelsMarketing Consumer II : Farmer Potatoes 🡪 Merchant s Collector 🡪 (3) Channel Marketing III : Farme Potatoes 🡪 Merchant Collector 🡪 2. Approaches in Market Structure, Behavior, and Performance ❑ Market Performance Approach ⮚ Analysis performance market aims to find out how the market performance of the marketing system. ⮚ Market performance looks at the consequences of market conduct, For example, there are companies that have large profits due to from its collusive behavior in oligopoly markets. 2. Approaches in Market Structure, Behavior, and Performance ❑ Market Performance Approach The analytical tool used as a market performance approach: 1) Marketing Margin Marketing margin is the difference in price received by producer farmers with the price paid by the end consumer. Formula: MP = Pr - Pf or MP = B + K Where: MP = marketing margin Pr= price at the final consumer level Pf = farm gate price B= marketing cost K=marketing profit 2. Approaches in Market Structure, Behavior, and Performance ❑ Market Performance Approach The analytical tool used as a market performance approach: 2) Farmer's Share of Price Received If farmers choose different marketing channels, the amount of price share received by farmers will be different. Formula: FS = 𝑃𝑓 𝑋 100% 𝑃𝑟 Where: FS = farm gate price share Pf = farm gate price Pr = price at the final consumer level 2. Approaches in Market Structure, Behavior, and Performance ❑ Market Performance Approach The analytical tool used as a market performance approach: 3) Marketing Profit and Cost Ratio The profit and cost ratio is used to see the distribution of profits and marketing costs borne by each marketing institution in marketing an item. Marketing costs include freight, storage, cleaning, depreciation, sorting and garding, loading and unloading, ordering, labor, transportation and packaging. 𝑖 Profit and Cost Ratio = 𝜋 𝜋 i= Marketing institution profit Ci = Marketing cost 𝐶𝑖 𝑋 100% Thank you