Economics principles and applications 2e by robert e hall marc lieberman
Download
1 / 27

Using the Theory - PowerPoint PPT Presentation


  • 232 Views
  • Uploaded on

Economics: Principles and Applications, 2e by Robert E. Hall & Marc Lieberman. © 2001 South-Western, a division of Thomson Learning. Using All the Theory: The Microeconomics of Online Retailing. © 2001 South-Western, a division of Thomson Learning. Online Retailing: The Basics.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Using the Theory' - Leo


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Economics principles and applications 2e by robert e hall marc lieberman l.jpg

Economics: Principles and Applications, 2eby Robert E. Hall & Marc Lieberman

© 2001 South-Western, a division of Thomson Learning


Using all the theory the microeconomics of online retailing l.jpg

Using All the Theory:The Microeconomics of Online Retailing

© 2001 South-Western, a division of Thomson Learning


Online retailing the basics l.jpg

Online Retailing: The Basics

  • An online retailer is a firm that provides goods and services directly to consumers who order on line.

  • Online retailers produce and sell retail services.

  • © 2001 South-Western, a division of Thomson Learning


The big picture online retailing living standards l.jpg

The Big Picture: Online Retailing & Living Standards

Online retailing enables the same retail service to be provided using fewer resources. The resource savings occur on both the selling side (where less labor, land, and capital are needed to make goods available on line) and on the buying side (where consumers save time by shopping on line).

© 2001 South-Western, a division of Thomson Learning


The big picture online retailing living standards5 l.jpg

The Big Picture: Online Retailing & Living Standards

Online retailing will shift the economy’s production possibilities frontier outward and enable us to enjoy a higher standard of living. That is, we can have more and better retailing services, or more of other things we value, or both.

© 2001 South-Western, a division of Thomson Learning


How the four step process helps us analyze the online retail industry l.jpg

How the Four-Step Process Helps Us Analyze the Online Retail Industry

Key Step #1: Characterize the Market

Online retailers are involved in a number of different markets, and the ones we choose for our analysis--and how we characterize them--will depend on the specific question we want to answer.

© 2001 South-Western, a division of Thomson Learning


How the four step process helps us analyze the online retail industry7 l.jpg

How the Four-Step Process Helps Us Analyze the Online Retail Industry

Key Step #2: Identify Goals and Constraints

The firm’s goal--as it makes decisions in its product market, in its factor markets, and in financial markets--is to maximize the total present value of its future profits.

© 2001 South-Western, a division of Thomson Learning


How the four step process helps us analyze the online retail industry8 l.jpg

How the Four-Step Process Helps Us Analyze the Online Retail Industry

Key Step #3: Find the Equilibrium

To answer important questions, we must find the long-run equilibrium in online retail markets. There is considerable disagreement among observers over the nature of that equilibrium.

© 2001 South-Western, a division of Thomson Learning


How the four step process helps us analyze the online retail industry9 l.jpg

How the Four-Step Process Helps Us Analyze the Online Retail Industry

Key Step #4: What Happens When Things Change

The Internet itself is an important change--one that is causing a fundamental reconfiguration of the economy.

© 2001 South-Western, a division of Thomson Learning


Resource allocation from bricks and mortar to the internet l.jpg

Resource Allocation: From Bricks and Mortar Industryto the Internet

  • Changes in the Online Retail Market

  • A Detour: Entry and Economic Profit

  • Some Conclusions About the Market for Online Retail Services

  • The Impact on Traditional Retailers

  • © 2001 South-Western, a division of Thomson Learning


Resource allocation from bricks and mortar to the internet11 l.jpg

Resource Allocation: From Bricks and Mortar Industryto the Internet

The forces driving entry and exit in the long run are not current profit, but rather the total present value of future profit that firms anticipate. When a potential entrant anticipates positive total present value of future profit, it will enter the industry, even if it anticipates short-run losses.

© 2001 South-Western, a division of Thomson Learning


Resource allocation from bricks and mortar to the internet12 l.jpg

Resource Allocation: From Bricks and Mortar Industryto the Internet

Firms expect future profits from selling goods online, and they expect the total present value of future profits to be positive, in spite of early losses. These expected future profits serve as a market signal, encouraging firms to enter online retail markets and provide more online retail services to society.

© 2001 South-Western, a division of Thomson Learning


Resource allocation from bricks and mortar to the internet13 l.jpg

Resource Allocation: From Bricks and Mortar Industryto the Internet

The demand for traditional retail services will decrease. All else equal, this will lead to lower markups and short-run losses at traditional retailers, causing some of them to exit the industry. In long-run equilibrium, there will be fewer traditional retailers than initially.

© 2001 South-Western, a division of Thomson Learning


Resource allocation from bricks and mortar to the internet14 l.jpg

Resource Allocation: From Bricks and Mortar Industryto the Internet

Because of online retailing, there will be fewer traditional retailers than there would otherwise be, and each will charge a lower markup than it otherwise would.

© 2001 South-Western, a division of Thomson Learning


Online retailing and labor markets l.jpg

Online Retailing Industryand Labor Markets

  • The Impact on Internet Professionals

  • The Impact on Traditional Retail Workers

  • Effects in Other Labor Markets

  • © 2001 South-Western, a division of Thomson Learning


Online retailing and labor markets16 l.jpg

Online Retailing Industryand Labor Markets

The demand for highly skilled workers needed by Internet firms is increasing, causing salaries for these workers to soar. The rise in salaries acts as a market signal--telling individuals that society would be better off if they took jobs in Internet firms.

© 2001 South-Western, a division of Thomson Learning


Online retailing and labor markets17 l.jpg

Online Retailing Industryand Labor Markets

Entry of new workers would ordinarily bring salaries back down somewhat. But continued entry by dot.com firms will work against the drop in salaries. In the new long-run equilibrium, there will be more highly skilled professionals working at Internet firms, earning higher salaries than initially, but not necessarily as high as in the short run.

© 2001 South-Western, a division of Thomson Learning


Online retailing and labor markets18 l.jpg

Online Retailing Industryand Labor Markets

Because of online retailing, the demand for traditional retail workers is decreasing, or rising more slowly than it otherwise would. As a result, salaries for these workers are stagnating. This acts as a market signal--telling individuals that society would be better off if they took jobs elsewhere.

© 2001 South-Western, a division of Thomson Learning


Online retailing and labor markets19 l.jpg

Online Retailing Industryand Labor Markets

Exit of traditional retail workers would ordinarily bring salaries back up somewhat. But continued exit by bricks and mortar retailers may work against this effect. In the new long-run equilibrium, there will be fewer people working at traditional retail outlets, earning lower salaries than initially, but not necessarily as low as in the short run.

© 2001 South-Western, a division of Thomson Learning


Online retailing and labor markets20 l.jpg

Online Retailing Industryand Labor Markets

Because Internet firms then to hire more highly skilled workers, the wages of these workers will increase, whether they work for Internet firms or not. Because traditional retailers tend to hire mostly less-skilled workers, their wages will decrease or rise more slowly, whether they work in traditional retail stores or not.

© 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market l.jpg

Online Retailing and Industrythe Stock Market

  • The Long-Run Profits View

  • The Zero-Profits View

  • © 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market22 l.jpg

Online Retailing and Industrythe Stock Market

In the long-run profits view,online retail markets can be hugely profitable due to barriers to entry. Only a few firms will survive in each retail market, and each survivor will have a monopoly on some valuable aspect of retail service, or be able to cooperate with its few competitors to boost markups and profits.

© 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market23 l.jpg

Online Retailing and Industrythe Stock Market

  • Barriers to Entry in the Online Retail Industry

  • Economies of Scale

  • Reputation

  • Protection of Intellectual Property

  • Network Effects

  • Lock-In

  • © 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market24 l.jpg

Online Retailing and Industrythe Stock Market

In the zero-profits view, online retail markets will be unable to earn economic profit in the long run. Barriers to entry will not be high enough to keep out new entrants, and comparison shopping will be easy. As a result, online retail markets will most closely resemble monopolistic or perfect competition, with zero economic profit in the long run.

© 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market25 l.jpg

Online Retailing and Industrythe Stock Market

  • Counterarguments to Barriers to Entry

  • Economies of Scale: No one yet knows at what point the minimum efficient scale occurs.

  • © 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market26 l.jpg

Online Retailing and Industrythe Stock Market

  • Counterarguments to Barriers to Entry

  • Reputation: Newcomers can develop good reputations, too. Moreover, there are many conventional firms that already have good reputations.

  • © 2001 South-Western, a division of Thomson Learning


Online retailing and the stock market27 l.jpg

Online Retailing and Industrythe Stock Market

  • Counterarguments to Barriers to Entry

  • Protection of Intellectual Property: Legal systems will evolve to help keep e-commerce markets open and highly competitive.

  • © 2001 South-Western, a division of Thomson Learning


ad