Applying Business Economics Concepts To Amazon.com, Demand And Supply, Competition Policy, And Financial Management

Structure-conduct-performance paradigm and globalization in Amazon.com

Amazon.com is the widest online book store and giving a huge competition to all its competitors’ worldwide. But, it can be analyzed that in spite of its growth in a tremendous way the organization has not recorded net profits till the year 2002 and also the profit was very small in terms of the sales made by the organization. So, it can be analyzed that market share does not lead towards profitability of the organization.

The manner in which the industry is carrying out its business will be helpful in determining market for the industry i.e. perfectly competitive or monopolistic. These markets will help the organization to attain profits. This theory is termed as paradigm of Structure- conduct-performance. The structure of the organization helps in determining the behavior of the organizations in a particular industry and this will help in examine the profitability that can be attained by the organization in that particular industry (Wang and Campbell, 2010).

It can be analyzed that the organization which are carrying its operations in a perfectly competitive market are not capable of charging the prices more than the price prevailing in the market.  Price can be put down by the competitors in such market equal to the marginal cost. The only way to earn profits in such market is to make differentiation either in services or products. The differentiation will help the organization to earn the profits. If the organization will successfully achieve the differentiation than the firm will be able to have monopoly and thus the organization can charged price according to it as there will be no competitors which can affect the price.

The market share of the organization depends upon the concentration of different organizations in the market and the dominance of the firms in the market. With the help of concept of structure conduct performances paradigm the organization make an analysis of the markets which are profitable for it and thus this helps the organization to earn more revenue in comparison to its competitors.

With the help of globalization Amazon earned about $107 billion sales in the year 2015 and in comparison to 2103 the company earns revenue double to its competitors. Amazon has captured online market around 46% and the share of the company grows at a faster pace with the help of globalization. The company also expands its business lines at a global level including auction house, book publisher, and manufacturer of hardware and a wide network of logistic. The company has double its sales on a yearly basis with the help of concept of globalization (Moloney, 2010). Adoption of the structure-conduct-performance paradigm help the organization to create entry barriers and use of control over data and the bargaining powers has also been increased.

It can be analyzed that the concern of structures are very important in relation to the online marketing as price plays a very important role. The business organization of Amazon is also discussed. Amazon has made its dominance in the online platform and invests all its profits in an aggressive basis in the organization again. This strategy of the organization helps it in standing ahead of the competitors.

Demand and supply analysis of UK’s agriculture industry

The premise of the Amazon is to make a business model which helps the company to grow. This approach will help the organization to weigh off the other competitors. Amazon is focusing on being market leader and provides its various services to customers like Amazon prime where delivery is being made in 1 to 2 days.  With the help of concept of globalization, the company has made worldwide customers and many of the customers choose Amazon over its competitors around the world. The organization enables to make the business strategies in terms of globalization in order to attract more customers (Whitmarsh and O’Neill, 2010).

The UK is based on the market and operates under the institutional and the framework of the policy carried in the country. The statement made by the department of environment and rural affairs shows the concept of demand and supply in the country. The yearly indicator for output has decreased 8.4% as compared to year 2014. The yearly index for inputs has decreased by 4.8% in comparison to year 2014.

 The potency of the pound in comparison to the euro and also dollar price in US has impacted on the index of the price in the world wide market and has impacted on the prices in UK. In the year 2015, the pound has made its strength against the euro and the dollar price in US which made the fall in price in the year 2015. The yearly crop product index was recorded as 5.8% less in comparison to year 2104 because of the decreased prices for crops and cereals (Lennartz et. al., 2012)

The area of wheat has made a fall by 5.4% and oats has made a fall by 4.4% and the barley area has shown its increment by 1.9%. The macroeconomic concept in UK can be analyzed from the area that pulses have made an increase in the year 2015 in order to fulfill the demand of the year 2015. The agriculture of peas has been increased according to the demand of the country. The sector of ornamental in the country has showed a downfall of 1.5% and in the sector of retail strong demand was stimulated which was fixed by the season production estimates.

There were poor weather conditions in the country discourage the growth of crop. Lower prices lead towards 14% in gross value. UK Department for Environment and Rural Affairs has the main purpose is to find out the potential of the country towards food and agriculture and animals and other hazards by maintaining elasticity of supply and demand. This will help in maintaining a healthy environment and thus excellent delivery of value for the money in the country.

This statement shows the concept of demand and supply. The measure of the changes in the quantity demanded with the changers in the prices of the product is termed as the elasticity of demand. This can be calculated by dividing the change in the quantity with the change in the price. There are various determinants which affect the same like inflation in the country has affected the price of potatoes in the country.

Applying competition policy and fiscal policy to achieve economic prosperity in the UK

Price elasticity helps in making an estimation of the changes in the price of the product over a period of time. Price elasticity can be determined through the changes in prices on the basis of the total revenue on a particular product with making consideration on the changes in the government policy. From this particular statement it can be analyzed that the supply was restricted in order to maintain the stability in the country (Lahti, 2014). The potato index rises 3.2% between the months in March and February 2017 as compared to the increase in month of March and February 2016.

Competition policy implemented by the UK government in order to make the markets a better place to work and in order to increase competition so that there will be economic prosperity in the country. With the implementation of competition policy, the government ensures that there will be innovation in the technologies and it will also bring efficiency in the markets of the country. This will also save and promote the interests of various stakeholders with the low prices. There are various major pillars of the competition policies of UK.  

Firstly, it includes the eliminations of the contracts in order to remove price fixation. Secondly, merger controls were implemented by the government in order to make proper investigation for mergers and acquisitions. The impact of competition policy in The UK can be analyzed from laws and penalties on the cases of price fixation and collision and reduction in the import tariffs which leads towards cheap products in the market of UK.  Evidence can also be drawn that the government has made high penalties up to 10 percent of the total turnover and the executives who made breach can be imprisoned (Tompkins et. al., 2010).

Fiscal policy is termed as the policy where government makes an adjustment in the level of the expenditure so that monitoring can be done to the economy of the nation. Fiscal policy helps in determining the government its budget in allocation of the resources and the income distribution arising from various sectors of the country. The fiscal policies made by the government plays a very important role in economic prosperity of the country.UK is considered as one of the global economy in the world. The country is facing economic problems on a serious level (Habegger, 2010). The country is facing problems like unemployment and deficit in budget. With the help of fiscal policy the government prevented recession and the inflation rate in the country and this lead towards economic prosperity in the country.

Government in the country has increased tax rate and thus this helps in cut in the expenditure in order to face the problem of inflation. This will also helps in reduction in the deficit of the budget of the country and this will make the country economic stability. This will also help in reduction in the demand on an aggregate basis and thus reduction in the inflation can be created (Mitchell and Muysken, 2010). The reduction in tax will increase disposable income. This will help in increase in the growth of economy and reduction in the employment.  

How managers use financial statements, financial planning, capital budgeting in decision making

Supply side policies help the government in UK to increase the productivity in order to make a shift in the supply on the aggregate basis. This will help the government to make a shift in the aggregate supply in the country and thus price level can be lowered. Supply side policies will help the government to make a reduction in the cost push inflation and this will help in making the economy more efficient. T

hese policies will also help in reduction in the unemployment in the country and thus an increase in the economic growth can be made in the country with the help of supply side policies. These policies will also help in making the organizations of the country more productive as more export can be made. Supply side policies in the country helps in increasing the effectiveness and efficiency in the country but it can actual growth rate cannot be identified.  After formulation of supply side policies in the year 1980s, the government thought that it will make a economic growth in fast pace (Whitmarsh and Köhler, 2010). The Lawson boom in the eighty proves that the growth rate in the country did not make any serious changes.

The managers make application of the concepts of the financial statements, capital budgeting and financial control in order to develop and make strategic goals for long time period. Managers use the concept of capital budgeting in order to make identification of the suitable projects for the business. Mangers use the concept of financial planning and control in order to make estimation for the cash flows for future. It also helps the managers to invest in the project which will create more value for the organization. The concept of financial planning and control will help the managers to move the information in an appropriate manner for the decision making in the organization.

These concepts also help the managers in defining a budget for all the expenditures in the organization.  Managers will be able to make an analysis of the trends of the organizations, its resources and different competencies. This will also help the managers for effective management of the cash and current assets and current liabilities. Managers can take financial decisions which can minimize the cost of capital and those decisions which can make a reduction in the potential risks. With the help of financial planning and control the managers can evaluate market growth and share and thus estimation on the return on investments can also be analyzed (Steinmueller, 2010). The concepts of financial management help the managers to take the decisions for the growth of the organization in the long term.

It can be analyzed that in the year 2009, the organization ExxonMobil which is the largest oil organization in the world makes an announcement of make acquisition of XTO Resources which is the largest gas companies in the country U.S. The decision of acquisition by managers of the organization was based on the concept of capital budgeting after making an identification that this investment decision will help the organization to grow and focus.

How firms obtain financing for its operations and investment through financial intermediation and instruments

Financial instruments and risk and return are keys for companies in order to seek long-term corporate investment, to keep going modernization, growth, prosperity and creation of value. Firms in UK apply the concepts of financial intermediation to have risk-return profile in comparison to its competitors. The evidence can be drawn from Deloitte established in the country. These days the organizations in the country are using the concept of financial instruments in order to obtain finance for carrying its business rather than taking loan from banks.

Bank lending was considered as the most source of external finance but with the help of concept of financial intermediation the companies in UK are getting finance on its own. Debt securitization and covered bonds are helpful for the firms in order to obtain finance (Kumbirai, 2010).

The concept of financial intermediation is not quite new. From years, it has been a subject of study at both the micro level and macro level in the country. At the macro-level, the significance of financial intermediation cannot be over-emphasized. New financial concepts in the country make a positive growth in terms of economy stability as there is improvement in the lending. By issue of debts and equity and various types of bonds, organizations in UK are raising finance for carrying out its operations. Different types of financial instruments are prevailing in the market by the firms in the country. The concept of financial instruments and risk and return are applied by the organization in order to make huge profits and to stand ahead of competitors as it will lead towards increase in goodwill of the organization.

In the recent years with the help of the concept of financial instruments and risk and return, it becomes easy for the firms to offer hybrid tools in order to fulfill the needs of funds. The major source is equity finance where the company grab long term investments and to bring the growth opportunities for the organization. These concepts will also help the organizations to make an investment of its profit in the right direction in order to earn huge revenue in long time duration. Evidence can be drawn from Amazon who uses this concept in order to stand ahead of its competitors (Bennouna et. al., 2010).

(A) Financial ratios of Tesco and Morrisons for the year 2016

Analysis of Liquidity Ratio

Name of the ratio	Formula	Tesco 2016  (£m)	Morissons 2016 (£m)
Current ratio		=0.740	=0.477
	Current assets	14592	1316
	Current liabilities	19,714	2755
Acid Test ratio		=.616	=.254
	Current assets	14592	1316
	Inventory	19714	616

Analysis of Profitability Ratio 

Name of the ratio	Formula	Tesco 2016  (£m)	Morissons 2016  (£m)
Net profit margin		=0.264%	= 1.377%
	Net Profit	129	222
	Sales Revenue	54,433	16122
Gross profit margin		=5.2453%	=3.827%
	Gross profit	2,854	617
	Sales Revenue	54,433	16122

Analysis of Market Performance ratio

Name of the ratio	Formula	Tesco 2016  (£m)	Morissons 2016	(£m)
Earnings per share		=1.70	= 9.51

Analysis of Capital Structure ratio

Name of the ratio	Formula	Tesco 2016  (£m)	Morissons 2016
Debt to equity ratio		=409.563	=147.79%
	Total liabilities	35288	5551
	Total equity	8616	3756
Equity ratio		=19.624%	=40.35%
	Total equity	8616	3756
	Total assets	43904	9307

Analysis of Efficiency Ratio 

Name of the ratio	Formula	Tesco 2016  (£m)	Morissons 2016
Inventory turnover ratio		=139days	=15days
	Inventory	19714	616
	Cost of sales	51,629	15505

From the above analysis, it can be concluded that Morrisons has a better financial structure and stability in terms of Tesco as it has net profit ratio of 1.377% which is quite high from Tesco. Morrisons also has Inventory turnover ratio of 15 days which shows its solvency. Morrsions also has a stability in its capital structure with proportionate in debts and equity in comparison to Tesco.

(B) Future Value of Uneven Cash Flow Streams

Note: each cash flow is treated as a lump sum amount and compounded for the appropriate number of periods.

FV₃ = $400(1.055)² + $300(1.055)¹ + $250 = $400(1.1130) + $300(1.055) + $250 = $1011.7

(C)Calculation of Net Present Value:

Net present value is the difference between the initial investment and present value of future cash flows of a project. If NPV is positive, the project is accepted, if not, then it is rejected. NPV can be calculated as follows:

		Project A		Project B
Year	Discount Factor (10.25%)	Cash Flows(In$)	Present Value(In$)	Cash Flows(In $)	Present Value(In$)
1	0.907	25,000	22675	0	0
2	0.822	15625	12843.75	0	0
3	0.746	5000	3730	0	0
4	0.676	12000	8112	0	0
5	0.614	32000	19648	99500	61093

NPV = Present value of cash inflows – Initial Investment

For project A:

NPV = $67008.75 − $50,000

NPV = $ 17008.75

For Project B:

NPV =$ 61093 − $50,000

NPV = $11093

Since, NPV of both the projects are positive, both projects can be accepted. But, priority should be given to project as it has highest NPV (Hall and Millard, 2010).

References:

Bennouna, K., Meredith, G.G. and Marchant, T. (2010) Improved capital budgeting decision making: evidence from Canada. Management decision, 48(2), pp.225-247.

Habegger, B. (2010) Strategic foresight in public policy: Reviewing the experiences of the UK, Singapore, and the Netherlands, Futures, 42(1), pp.49-58.

Hall, J. and Millard, S. (2010) Capital budgeting practices used by selected listed South African firms, South African Journal of Economic and Management Sciences, 13(1), pp.85-97.

Kumbirai, M. (2010) A financial ratio analysis of commercial bank performance in South Africa, African Review of Economics and Finance, 2(1), pp.30-53.

Lahti, A. (2014) International Trade, Entrepreneurship, and Monopolistic Competition: German Hidden Champions and Global Markets, China-USA Business Review, 13(9), pp.592-613.

Lennartz, C., Haffner, M. and Oxley, M. (2012) Competition between social and market renting: a theoretical application of the structure-conduct-performance paradigm, Journal of Housing and the Built Environment, 27(4), pp.453-471.

Mitchell, W. and Muysken, J. (2010) Full employment abandoned: shifting sands and policy failures, International Journal of Public Policy, 5(4), pp.295-313.

Moloney, N. (2010) Regulating the retail markets: Law, policy, and the financial crisis, Current Legal Problems, 63(1), pp.375-447.

Steinmueller, W.E. (2010) Economics of technology policy, Handbook of the Economics of Innovation, 2, pp.1181-1218.

Tompkins, E.L., Adger, W.N., Boyd, E., Nicholson-Cole, S., Weatherhead, K. and Arnell, N. (2010) Observed adaptation to climate change: UK evidence of transition to a well-adapting society, Global environmental change, 20(4), pp.627-635.

Wang, Y. and Campbell, M. (2010) Financial ratios and the prediction of bankruptcy: The Ohlson model applied to Chinese publicly traded companies, The Journal of Organizational Leadership and Business, 17(1), pp.334-338.

Whitmarsh, L. and Köhler, J. (2010) Climate change and cars in the EU: the roles of auto firms, consumers, and policy in responding to global environmental change, Cambridge Journal of Regions, Economy and Society, 3(3), pp.427-441.

Whitmarsh, L. and O’Neill, S. (2010) Green identity, green living? The role of pro-environmental self-identity in determining consistency across diverse pro-environmental behavior, Journal of Environmental Psychology, 30(3), pp.305-314.