Managerial Economics - Price Discrimination Essay

Managerial Economics - Price Discrimination - Essay Example Second-degree price discrimination is the 'buy more pay less" policy of large corporations where as bulk purchases attract more discounts to encourage quicker stock clearance.An example is the Supermarket offers which state "Buy three get One free' for CD's and Grocery items like Dishwashing liquid. Third degree price discrimination is based on certain consumer segments in the consumer base that pay more or less depending on State policy.For example the London transport Board gives large discounts to travellers who are students and senior citizens. Business strategy comprises of a myriad of value creating concerns like value creation and value capture both of which are important for securing a firm's sustainable competitive advantage.It has to be understood that competitive advantage is a result of these two distinct (albeit related) activities: value creation and value capture. Based on the nuances created by "sustaining" success it is possible to conclude that capturing value is indeed a greater tumultuous task than value creation.Simply stated it is very easy to get what you want but keeping it might become a problem.This reasoning is in line with Porters strategy of competitive advantage. Economies of scope are based on cost reduction of resources and skills for a firm by the expansion of these resources and skills over two or more firm tasks.This may lead to cutting costs to a large extent.For example the accounts department of a Firm can be used to bill and prepare cost documents for all its subsidiaries or partners to save costs of maintaining an accounts department overall. 4. Discuss the owner-manager conflict within the firm. Provide two real world manifestations of the conflict. The structure of the modern corporate form entails that there will be a separation of ownership and control between the shareholders and directors. The limits of a manager's accountability are his discretions that are revealed in his performance. One of the economic or financial consequences of his actions is that in accordance with his performance results, the investors reduce the amounts of investments.Thus what can be called the "opportunistic behaviour" of the managers results in inefficiencies that have direct bearing in reduction in investments if the shareholders feel that their investments are being unfairly appropriated.This calls for corporate governance mechanisms to enhance shareholder confidence and reduce the owner-manager conflict. Real world examples of the conflict are the Enron and Northern Rock Crises where the Directors through their wrongful trading put the interests of thousands of shareholders at stake. Another example can be the newly implemented laws in Engla nd after the passing of the Companies Act 2006 for the review of director's duties which have become codified in statute now to promote and maximise shareholder wealth. 5. Discuss the value-maximizing principle. How are reputational concerns related to this principle The conventional view in managerial economics is that the aim of economic activity will be to maximise business profits. However there is no single explanation in literature of whether infact profit maximization is the main centre of management decisions. The