Posts

Showing posts with the label economies of scope

Decision Making as Output and Bounded Rationality

-
  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
Post a Comment
Read more

A Primer on Real Life Action and Economics- I

-
We often use economics subconsciously as we go about our daily routine. Economics is about human actions and behaviour and we engage in plenty every day from birth to death. These actions consistently demonstrated over period of time reveal patterns that build up the theoretical and conceptual foundations in economics. Quite often, many actions undertaken either in personal, social, or professional capacities might occur without any explicit linkage to economics but each of those actions perhaps reveal something about economics and its idiosyncrasies in life. Presented below are few examples in tabular form. One column highlights the real life phenomenon what we observe, while the second column builds up the theoretical linkage to economics. Real Life Practice/ phenomenon Economics Linkage Free E-mail services It might be puzzling to find why Gmail offers free email services. Given the server capacity they possess, any addition of extra user to
Post a Comment
Read more

Production Malls!

-
To Alfred Chandler, the edifice of the business landscape was centred on the domination of the big. As someone described him, he was hunter of big game and collected trophies in both US and Western Europe. For Chandler, scale and scope characterized the flora and fauna of business, thus a critical role for the volume and diversification. The hunters of the small game, in the backdrop of the above, would find difficult to sustain in the long run. Chandler’s assertions, incontestably, command certain merits. Firms whose cost structured is preponderated towards fixed costs necessitate large volumes for subsistence. Fixed costs apportioned over large volumes pull down average fixed costs creating conditions for economies of scale.   Simultaneously, as the firm gains weight, there would be increasing difficulties in organization management thus generating certain diseconomies of scale. The trade-off that firm is able to execute and balance will define its wherewithal.   Large industr
Post a Comment
Read more

The Digital and the Market

-
Internet, predictably, provoked the time-honored silhouette of business, government and society interfaces. Critics notwithstanding, pervasive digitalization, indubitably, is causative to geometric spread of organically evolved markets. The ubiquitous internet ecosystem, chaotic as it may seem, is trenchant in dismantling the sources of market failure. Changing Price Elasticity Price discrimination manifests itself from airfare differentials across portals; loan and deposit rate differential across banks and among customers of similar hue, inter-firm differentials in insurance premium, among others. Information asymmetry surfaces in consequence of cognitive costs of choice evaluation thus making the goods price inelastic. Sites like momondo.com, Google flights, policybazaar.com, paisabazaar.com, confused.com etc. by presenting a simple comparison of prices across firms reduce switching costs thus making products price elastic, consequently lower prices. Narrowing price dif
Post a Comment
Read more