Free Market

An economic system is the result of individuals (consumers and producers), groups (firms, trade unions, political parties, families etc) and the government coming together and interacting in a legal and social society. The function of an economic system is to resolve the basic economic problem – scarcity which means that the resources are limited but wants are infinite. This distribution has three dimensions: * What is to be produced * How is it to be produced * For whom is it to be produced. There are 2 economic systems which are commonly used world-wide.

There are: the ere market system in which the role for the government is limited and the planned system where the government takes vitally total control. In both of these systems there are different methods of resource allocation used. There are economies that use a mixture of these systems in particular the planned and free market system also known as the mixed economy in which some of the decisions resource allocation are done by the government and other by the public. In a free market economy: *The factors of production are owned by private individuals or groups of individuals who own the resources.

They then rent them out to the firms so that they can produce the goods and services. *Everyone is motivated by pure self interest. Consumers maximizes welfare, firms maximizes profits and private individuals aim to maximizes rents, wages interest and profit. *Firms can sell anything they want. They respond to the consumers who are allowed to by anything that is sold by the producers. *The level of competition is very high. Firms are competing desperately for customers and the consumers are competing with each other for the goods on offer How are resources allocated under a market mechanism?

What is to be produced? Explain how resources are allocated in reference to the different economic systems? By Festive resources. Consumers are sovereign. Each consumer has a free choice on the amount of money to spend on goods and services. Firms with the money received, buy the factors of production needed to produce goods and services. In other words in a free market a firm will only produce what the consumers are prepared to buy. The consumers are the ones to dictate the goods that should be produced. For example the public decides that they want to buy more product X than product Y.

The increase in demand for product X will increase the price at first. The production of product X will increase since many new first will get attracted with the idea of profit and at the same time the level of competition will increase. On the other hand for product Y the demand will fall along with profits. In general there is a transfer of resources from one industry to another. How will it be produced? There is competition between the various firms. Consumers will buy from the producers which offer the lowest price. So producers must produce at lowest cost.

This then determines how goods are produced. The firms will adopt the lowest cost technique of production hence resulting in productive efficiency and allocation efficiency For whom will it be produced? The amount of money the consumers spend is determined by their income. This affects the factors of production since those with high invokes will be able to consume more of the goods whilst those with low income can only buy few goods and services. There are some advantages in a free market economy: *Resources are allocated more efficiently. There will be a much larger choice of goods and services *Firms will keep on innovating and produce better quality products since there is a gig level of competition *Higher economic growth rates – Economic systems with a free market model have grown much faster than those with a command economy. For example with the restaurant Mac Dona’s the demand is high because the consumers find it convenient to Just drop by and have a meal within a matter of minutes, and since the consumers demand more the supply of it is also large.

A command economy has a very powerful government sector and the workers and mechanism. Some goods and services are provided free and some rationed or sold The characteristics of a command economy: Factors of production are owned publicly by the government * No one think of himself – Everyone is assumed to be working for the common good * There are no free enterprise * There is very little competition which gives rise to black markets * Since there is no competition there is no price mechanism.

The authorities set the prices, and they are forced to set the prices low to make sure that it is affordable to everyone * The government has the responsibility of planning how all the resources should be used. The decide what should be produced and in what quantities. In other words they set the output and price levels. The consumer does not have any control at all on what will be produced. The planners or the government decide what will be produced, but the main problem which arouses is that the government does not know what exactly the consumers need.

In other words supply is dictated by a governing body which tries to predict demand however this process is very difficult and it leads to heavy losses. There is no such thing as firms in a planned economy. The government direct the resources into producing “units” They have no autonomy, so basically the government decides the quantities of output and the methods of production The government tries to distribute the output of the economy more fairly. Wages are determined by the planners and so are the prices of the goods produced.

So the government is effectively determining how much each consumer can consume. They also believe that all consumers get equal amounts. Advantages of a planned economy: * The strong government will make sure that public and merit goods are consumed * The government will try to make sure that nobody falls through the safety net. It will be a fairer economy even though it is likely to be less successful overall. * Command economies can make sure that the production processes that they chose re as environmentally friendly as possible.

They should be able to make sure that the level of output is the socially optimal level of output. For example in Russia the government decided to produce Jeans at a large scale but people were importing levis Jeans and were selling them for a much cheaper price. This meant that the government lost a lot of money since they predicted that the people needed Jeans but in reality they did not and even though they lowered the prices there were still huge amounts of stock which was not sold.

A mixed economy as the name implies is a mixture of a planned economy and a free enterprise economy. In pure practice no pure planned economies or free enterprise economies exist in the world. It is a mixture of the two extremes and the degree of mixing depends and varies from one society or country to another. Characteristics of a mixed economy: * The government owns some of the country’s factors of production publicly and some are owned privately * The market part of the economy will be motivated by self interest.

First will maximizes profit consumers will maximizes their welfare and the factor owners will maximizes rent interest and profit. The government on the other side has the common DOD goal. * There are only free enterprises in the free market part of the economy * The level of competition will vary on the degree of mix. And it will depend on the market structure. * The price mechanism operates in the private sector. Its efficiency depends on how competitive the market structures are.

The government run activities. Many countries or economic systems have attempted to solve the resource allocation problem by reaching a compromise between the free market and planned economy systems. For example a governing body may decide that the production possibility reorient (app) has potential to increase if education and health services are proved to the public and thus enforces this, thus supplying it for free – this must be paid for by taxes which encourage a planned economy approach.

However the remainder of the economy follows a free-market model people are healthier then they are more educated and the more educated the healthier. This means that they firms will be able to have better qualified workers. This in turn will mean that the taxes will increase and the government will get more money. This money can be invested into improvements in technology and resulting in n increase in the app. For example the I-J offers free NASH this means that more money can be spent on education and train people and this can lead to an improvement in technology.

On the other hand the better the education means that people are better qualified and more people can become doctors and thus it will improve health services. Though there are 3 main types of economic systems which sue three different methods of resource allocation, there is often, in developed countries a tendency to use mixed economic methods in which both aspects of the free market and the leaned economy are present. In developing countries there are approaches to the problem of resource allocation using all 3 methods.

In a free market economy supply is dictated by demand, the bigger the demand the bigger the supply and thus the price of the product is given. In a planned economy the governing body makes those decisions, supply is dictated by a governing body which tries to predict demand however this proves very difficult and it supplies goods to its wish and in a mixed economy supply of certain suds is dictated by a governing body and the others by demand.

Let us take an example of two farmers who are producing the same type of commodities, which are ground nuts and maize, from the same size of farms. If the two farmers decide to devote all their efforts in producing maize, their farm outputs will be as follows: farmer A – 600 bags; and farmer B – 200 bags. If they allocate their resources well and produce ground nuts, their output will be as follows: farmer A – 300 bags, and farmer B – 200 bags. We can say that that farmer A enjoys absolute advantage in producing both maize and groundnuts than farmer B.

The two farmers can however still benefit from each other through specialization and commodity exchange. Farmer A has a comparative advantage in producing maize while farmer B has comparative advantage in producing groundnuts due to opportunity cost of production in both farms. Based on current economic conditions, make one argument in favor of more government involvement in the economy and one argument in favor of less government involvement in the economy. For many governments, involvement in their respective economies is important.

This is because the governments can ensure that producers are not exploited due to lack of market for their products in by enhancing trade with other countries. The governments will thus procure ready markets for that product in other countries, hence promoting the economy in their home countries. Moreover, governmental involvement in their countries’ economies is important because it can ensure that business activities are regulated for a free enterprise and competition. Governments may also fight corruption in private sectors to ensure that consumers are not exploited by the large producers and monopolies.

Diminishing marginal utility explains a lot about human behavior. For example, it helps illuminate why diets fail, romances fade, too much exercise harms us, and many other things. Select a human behavior and construct a “mini case study” that highlights the workings of marginal utility. Take an example one being thirsty and instead of drinking water, deciding to go to a nearby kiosk or shop to drink a cold soda. The first soda they get may be very good or appetizing until they decide to take another one. For the first soda taking, on a scale of ten, the person can even score ten out of ten.

For the second soda, since they have somehow quenched their thirst, they can score five out of ten. If they continue to take another soda, they can even not finish it and now score two out of ten. Read the LAST Word piece “Financing Social Security” listed below. Of the alternative approaches to repairing social security, which do you think makes the most sense, and why? As part of your answer find a recent (less than a year old) article on the subject and cite it. The approach that makes the most sense is investing the payroll taxes through personal retirement account.

This approach is important because it can improve the standard of living of employees in the future after they have retired from work. Employees will be able to properly structure their incomes besides being allowed to get used in future to any need during their time of retirement. They may thus either start their own business or incase of death arises; they can leave those funds for their families. An advantage of using this approach is that new employees, who will perhaps be earning low incomes as compared to the old employees, will have to contribute fewer taxes toward the security fund.

They will however continue increasing their remittances as their payroll will continue to rise up. Those funds must also be deducted throughout one’s life until they retire from your job. People will thus start receiving the benefits of that scheme, or in case of they die, their spouses or dependants can enjoy that benefit. Another importance is that workers of any income level are allowed to contribute to this scheme and build nest eggs for their families. Personal retirement accounts are voluntary and young workers have an opportunity to open and continue with them for future benefits which could be a worth a presentable sum of money.

Philosophy 6: Ethical Issues in Business Midterm Essay Chase Novak Dr. Parker Need or Greed? New Protocol: How Drug’s Rebirth as Treatment for Cancer Fueled Price Rises Immanuel Kant-Kantian Deontology John Locke- The Justification of Private Property Adam Smith-Benefits of the Profit Motive

Milton Friedman- The Social Responsibility of Business Is to Increase Its Profits Thesis: An examination of the case study New Protocol: How Drug’s Rebirth as Treatment for Cancer Fueled Price Rises relies heavily on a keen understanding of the social and economic implications of a capitalist system, and once taken into account it is clear that Celgene Corp. is justified in raising prices based on the business market philosophies asserted by Adam Smith, Milton Friedman, Emanuel Kant, and John Locke. Word Count: 1690

Perhaps the most difficult situation in business arises when the indigent desire the product being sold. Political pressure is often put on the company to lower prices in order to accommodate the less fortunate consumer, however, this is in direct conflict with the company’s paramount goal of making the largest profit possible. Issues are increasingly complex given the supply-demand aspects of society and the incentive for production. For these reasons approaches to business that emphasize profit over availability can indeed help society in many ways.

Upon the question of ethics one must view the entire market as a whole and the benefits of competition when deciding a fair price. An examination of the case study New Protocol: How Drug’s Rebirth as Treatment for Cancer Fueled Price Rises relies heavily on a keen understanding of the social and economic implications of a capitalist system, and once taken into account it is clear that Celgene Corp. is justified in raising prices based on the business market philosophies asserted by Adam Smith, Milton Friedman, Emanuel Kant, and John Locke.

Celgene’s decision to raise prices is complex and though at first glance may appear to be fueled by greed it is in fact a necessary and beneficial step in Celgene’s continued production of the medicine thalidomide along with researching other medical advances. Celgene Corp. ’s decision to incrementally raise prices is justified by Adam Smith’s free market philosophy in which he describes competitive production as the main force behind societal development and improvement. Though there has been little affect to the cost of production for thalidomide, the nature of free market production dictated the rise in price.

This, according to Smith is a natural element of the free market, “As every individual […] endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value, every individual necessarily labors to render the annual revenue of the society as great as he can” (Donaldson, 167). In this quotation, Smith is explaining how every individual’s personal strive for success, in the form of production, helps to improve society as a whole.

If each individual’s ultimate goal is to increase their wealth, and if increased wealth is sought through improved production, then the competition for wealth will undoubtedly result in improved production. Improved production can mean either cheaper manufacturing, resulting in lower costs for the consumer, or a better product, which will also help society. Smith continues on to say that this competition is self-perpetuating and that the profit made off of production is reinvested to further improve manufacturing. Evidence of this can be observed in the Celgene Corp. aising of prices on thalidomide which resulted in, “The ability to […] fund the pharmaceutical industry’s research and development programs, which bring new medicines to patients” (Donaldson, 151). This can be further proven by the fact that Celgene’s R&D department uses almost half of the company’s revenue (Donaldson, 154). In this example, Celgene is able to provide consumers with newer and more effective medication as a result of its competitive pricing of thalidomide. Though many critics of Celgene would call the corporation’s decision to raise prices a genuinely greedy and selfish act, Smith sees nothing wrong with such a move.

On this issue Smith states that an individuals self-centered motives often improve society: “By pursuing his own interests he frequently promotes that of the society more effectually than when he really intends to promote it” (Donaldson, 167). Given Celgene’s perceived self-centered actions, Smith would note that this type of free market behavior is positive and is guided by an “invisible hand” which helps such behavior to be beneficial to society as a whole. The next philosopher to be examined would argue that the “invisible hand” that Smith speaks of is indeed separate from the political realm.

Milton Friedman continues with Smith’s line of logic as he asserts that the chief concern of the businessman must be to make a profit under socially acceptable means and that the defining of “social responsibilities” must be left in the political sphere. Celgene’s chief executive, John Jackson, was the primary force behind the company’s decision to raise prices. Jackson’s actions are perfectly ethical according to Friedman who writes, “What does it mean to say that the corporate executive has a “social responsibility” in his capacity as a businessman?

If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers” (Donaldson, 35). Jackson answers to a board that represents the stockholders of the company and it is his ethical obligation to them to make a profit. Celgene was losing money until 2002, which obviously necessitated an increase in price (Donaldson, 153). Jackson’s move to incrementally increase the price of thalidomide was not unethical because he has an obligation to stockholders to deliver a profit.

Furthermore, Friedman asserts that it is not the corporate executive’s job to act as a moral entrepreneur as he is ill fit to do so. Friedman stresses that calls for executives to act “socially responsible” are unethical as socially impactful decisions, such as price adjustment, must be left up to publically elected officials with knowledge of the social and economic implications of such actions (Donaldson, 36). Friedman makes a vital point as it explains that the social responsibility falls on the public and its publically elected officials to enforce social justices through legislature.

Therefore if the public desired Celgene to lower prices of thalidomide then it must require it to do so through law. Furthermore since no law exists requiring Celgene to sell thalidomide at a certain price, then Celgene is perfectly ethical and justified in raising its prices. If executives like Johnson adjusted prices according to their personal beliefs then huge portions of society would be heavily affected by such decisions and thus the public should reserve the right to solve such social dilemmas through democratic means in the form of law.

Emanuel Kant’s philosophy of the “categorical imperative” also works to ethically justify the pricing of thalidomide by expressing the need for a universal standard of ethical practice. Though Kant would most likely desire a socialist utopia or at least complete universal healthcare, neither is realistic in the present day. In a Kantian society individuals would want free healthcare for everyone. No ethical issues would be in question if everyone received their entire healthcare for free.

The result is a derived understanding of his categorical imperative, which explains a desired scenario in which on party acts onto another party in the same manner he himself wishes to be treated (Donaldson, 112). In this sense, under a capitalist system, Celgene is responding to the market by acting accordingly and raising its prices to increase production. The most basic element of ethics lies in John Locke’s philosophical explanation of product ownership and it works to prove Celgene’s right to raise its prices.

At the very heart of business is the ownership of a private property which one elects to sell for a profit. According to Locke, God made the earth for man to exploit for his personal needs and thus it is logical that some men will not have common ownership of the land (Donaldson, 158). Locke’s philosophy on private property explains that man has the right to own property and that he alone can chose how to use his property. Using this justification, Celgene’s ownership of thalidomide entitles them to price it at any rate it sees reasonable.

Moreover this justification is ethical because it comprises the sole force behind production. If corporations like Celgene cannot retain the right to ask for their own price for the products that they produce then there exists no incentive to produce. As a society we cannot force companies to produce essential information, technology, or medicine without an incentive. That is not how society works. Rather, our society is functions under an incentive-based system, which uses competition to provoke the best and brightest to produce the most important products for society’s use.

If Celgene was made to sell their products at a price convenient for the consumer but crippling to the manufacturer then production would decline and society would falter. Thus to ensure continued production and quality corporations such as Celgene must be allowed to conduct business according to their best interests with regard to price. Society hinges on the expectation that companies will provide the food, goods, and medicine that it requires to function, however, certain elements must be in place in order to ensure the continued production of such commodities.

As explained by Adam Smith, Milton Friedman, Emanuel Kant, and John Locke, society is improved by a free market system in which revenue from production is poured back into production to result in the overall improvement of society as a whole. Though some may see a raise in price as unfair, one must view such circumstances from the standpoint of the corporation, as business is a constant back-and-forth between the consumer and producer.

The overarching ethical theme of the case study focuses on the need to provide the medical sector with the necessary profits to continue its research and development programs in the efforts of advancing the entire field for the betterment of society. This is surely an ethical endeavor. Works Cited: Donaldson, Thomas, and Patricia Hogue. Werhane. Ethical Issues in Business a Philosophical Approach. Upper Saddle River (N. J. ): Prentice Hall, 2008. Print.

Jouma! of Marketing Management, 1997, 13, 4 2 1 ^ 3 0 Evert Gummesson Stockholm University, School of Business, Stockholm, Sudden In Search of Marketing Equilibrium: Relationship Marketing Versus Hypercompetition This paper is a discussion on work in progress conceming tke development qf relationship marketing (RM). It is particularly focused on the concept of marketing equilibrium which is a marketing management correspondence to market equilibrium, the traditional concept of neoclassical economic;. The paper starts with a brief introduction to the author’s approach to RJ4.

It proceeds with a summary of the concept of marketing equilibrium. The next section is a discourse on hypercompetition, a partiailarly intense type of competition that has been observed by several authors. RM offers a marketing theory based on collaboration with various stakeholders through long-term relationships, customer retention and loyalty. In contrast, hypercompetitiett claims that customers uHU switch between suppUers at an inaeasingly faster rate and that competitors will become increasingly hostile to one another.

Two basic questions are raised: do RM and hypercompetition represent two conflicting but coexisting trends that arc both growing in intensity? and How can this coexistence or conflict be conceptually handled? Tlie aim qf this paper is not to be complete and provide an answer, only to draw the reader’s attention to hypercompetition as an opposite trend to RMand to offer a platform for further analysis and constructive and reflective scholarly dialogue. The 30R Approach to R M The 30R approach to RM is the outcome of an ongoing research project on “the new markedng” (Gummesson 1994, 1995). 0R refers to thirty reladonships that were found to exist in marketing. During the research process, three core variables stood out: relatiorahips, networks and interacdon. A consequent definidon of RM then became “RM is marketing seen as reladonships, networks and interacdon”. The 3ORs wiU not be listed here, but their basic structure wiU be given. A distinction is made between market reladonships (reladonships between actors in the market such as suppUers, customers, compedtors and intermedieiries), nd two types of non-market reladonships which exercise an influence on market reladonships, but are not part of the market propier. These are mega reladonships (reladonships in society, above the market reladonships, such as reladonships to governments) and nano reladonships (reladonships inside organizadons, such as intemal customer reladonships). Services markedng and ttie network approach to industrial marketing have provided the primary theoredcal impietus for the author to explore the shortcomings 0267-257X/97/050421 + 10 $12. 00/0 ©1997’nte Dryden Press 422

Evert Gummesson of traditional marketing management theory. ^ Both theories were bom in the 1970s and have continued to giow in importance. The author’s idea to merge the two goes back to 1982 and has since been pursued and broadened (Gummesson 1983, 1987, 1995). The term RM, however, was not used in a general sense until about 1990 (see e. g. Christopher et al. 1991; Groru-oos 1994; Gummesson 1994; Hunt and Morgan 1994; Sheth 1994). Instead, terms Uke long-term interactive relationships, interactive marketing, network approach and a new concept of marketing were used.

My resejtrch approach is theory generating and based on comparative, qualitative analysis and syniiieses between data from inductive, real-world studies^ received theories and new theories in the process of development. Marketing Equilibrium This section is an introduction to the general concept of marketing equilibrium and a discussion on certain aspects of the equilibrium. Marketing equilibrium is a serendipitous outcome of the author’s research on RM. The concept is further elaborated in Gummesson (1995, 19%). The three forces of marketing equilibrium are competition, collaboration and regulations/institutions.

Although Western economies are repeatedly referred to as market economies with free competition as their ethos, in reality they are mixed economies in which competition coexists with collaboration and regulations/ institutions. Marketing equilibrium contends that a sound market is the outcome of an optimal combination of the three forces of competition, collaboration and regulatiorw/institutions. As all kinds of equilibria in dynanuc envirorunents are unstable, it is a matter of heading toward a moving target, orJy rarely reaching it and only rarely staying there for any longer period of time.

Whereas traditional marketing management literature primarily deals with competition, RM highlights collaboration. Collaboration implies that aU parties actively assume responsibility to make relationships functional. The author’s conclusion is that: The focus on collaboration is the most important contribution from RM, with an impact on both marketing management and economics, and that collaboration in a market economy needs to be treated with the same attention and resped as competition. Although the third force, regulations/institutions, is not the theme of this paper, a few words will be said about it.

Regulations indude both formal regulations through legislation, and informal codes of conduct through culture; institutiorts are both formal authorities whose task is to ascertain that regulations are enforced, and phenomena such as the family or religion that enforce a certain behaviour. In marketing rhetoric, regulations/institutions—and to a large extent also collaboration— are treated with suspidon and as inhibiting competition and the dynamics ^Inputs to the 30R concept also came from traditional marketing management, sales management, quality management, orgaruzation theory, and other areas. The term real world data is iised here instead of empirical data. Thereasonis that too often researchers in business subject mistake empirical for qiiantitative, while in the geiieral language of sdence empirical refers to all types of data, whrther they come as qualitative, quantitative, or in any other format. In Search of Marketing Equilibrium: Rdationship Marketing vs Hypercompetition 423 of an economy. In narketing practice, however, they are ubiquitous. Douglass North, Nobel Prize laureate in the economic sdences in 1993, has shown that regulations/institutions are dynamic and necessary elements of a narket economy (North 1993).

Marketing equiUbrium attempts to see the role of marketing management in the context of sodety and on an industry and economics level. It should not be confused with the market equiUbrium of neoclassical theory of economics (also referred to as microeconomics or simply price theory). ^ In neoclassical economics, the core variables are supply and demand balanced by the invisible hand of price in a market of free competition. The market is assumed to be striving in the direction of a longterm equiUbrium in which aU prices are equal and all products are standardized. Customers and suppliers are anonymous masses.

Companies and industries are not managing their production and sales, they are orUy adjusting to exogenous market influences. All deviations from this idealized model axe referred to as unwanted imperfections. Although marketing management is offen described as an adaptation of neodassical economics, it is blatantly obvious from even a simple real-world study of markets, industries and individual companies, that a different foundation for a marketing management theory is imperative. For example, services which constitute anything from 60 to 90% of today’s economies (depending on definition) are not considered.

The assumptions of neoclassical economics are simply not vaUd. There are signs that the interest in coUaboration is gaining ground not only in real business life but also in marketing theory; the most obvious being the upsurge of literature on RM and related subjects such as customer loyalty and alUances. Brandenbui^er and Nalebuff (1996) introduce the term “co-opetition”, which is a combination of co-operation and competition. They show that game theory is one possible way of exploring this combination (“the prisoners’ dilemma”).

Gray (1989) points to coUaboration as a solution to multi-party problem and says (p. 54): “Despite powerful incentives to collaborate, our capacity to do so is underdeveloped”. In the same spirit Senge (1990), in his treatise on learning organizations and the need for dialogue says (p. 10): “Interestingly, the practice of dialogue has been preserved in many “primitive” cultures… but it has been almost completely lose to modem sodety. Today, the prindples and practices of dialogue are being redbcovered and put into a contemporary context”.

EMalogue UteraUy means “tlunking together” There is ein extensive literature on competition both in marketing and economics. Particularly the books by Porter (1979, 1985) have received the attention of marketers. No effort wiU be made here to review the various aspeds of competition; the treatment of competition will be directed to its role in the marketing equilibrium and to the properties of hypercompetition. In market economies, competition is hailed as the driver of economic evolution and a necessary condition for wealth. The customer is given a choice, and a supplier can never be sure to have the customer in its pocket.

ITiis is a traditional view advocated by the business community, and to an extent also by the pubUc sector in many countries where deregiilation and privatization have become foreeful strategies. The countries of the Westem world—the capitalist sodeties—are not genuine ^See Hunt and Morgan (1995) for further analysis of the shortcomings of neoclassical theory. 424 Evert Gummesson market economies. They are mixed economies in which market forces and regulations have entered into wedlock. In totally unregulated markets only few can obtain the necessities of life.

For example, free markets give large corporations the freedom to offset competition, and those who cannot compete on the labour market are left to charity or misery. The opposite—total regulation — leads to rigidity. There is no general formula that tells us in what projx)rtions individual discretion and collective regulation should be mixed. Every market and period have to find their own specific solution. Competition is a driver of certain types of change. Even if RM puts emphasis on collaboration, I would like to see RM as a synthesis of competition, collaboration and regulations/institutions.

The issue is which combination of these will create the balance—the marketing equilibrium — in each sptedfic situation. If either of the three forces becomes unduly powerful, the economy will suffer; regulations/institutions is the sole force of a planned economy. To some extent there is a naive belief in competition to set everything right. The global wave of privatization and deregulation is a reaction in markets that have become stified. It is an effort to find a marketing equilibrium. Bureaucratic and legal values have often led to a misguided interference by politidans and an unreal belief in centralized control of sodety.

Although the term deregulation implies that regulations are abandoned, it is a search for more adequate laws and institutions which can become supportive to constructive forces of sodety and hold back destructive forces: Deregulation is reregulation! Some of the more conspicuous results from deregulation are found in the split up of Bell in the US and national telecom operators in many countries have lost their monopoly; the privatization of British government bodies such as the British Rail and the Airport Authority; and the most dramatic of all, the breakdown of the communist planned economies.

However, nobody so far has been able to overview the long-term effects of deregulation and privatization. There are necessary elements of the market economy that competifion and the free market forces do not master. They can be expressed in two paradoxes. The first paradox says: regulations are needed to secure that free competition will not be curbed. In spite of adl sweet talk about competition, every individual company or industry prefers to be spared the hazards of competitions (but they consider it essential for other comparues and industries). The second paradox says: The purpose of competition is to get rid of competition.

Competition attempts to reduce the infiuence of other suppliers by lower costs and prices, differentiated and difficult-tocopy offerings, or dominance of selected market niches. Hypercompetition The ideas on a new type of competition will be assembled under the umbrella concept of hjfpercompetition. They are taken from many sources, among them D’Aveni (1994), Hamel and Prahalad (1994), Moore (1996), and Verbeke and Peelen (1996). The term hypercompetition was first found in D’Aveni and the ensuing discussion on hypercompefition is mainly based on his concepts, but the comparison with RM strategies and the conclusions are my own.

In marketing management and strategy, the recommendation is usually advanced that companies should build a sustainable competitive advantage, thus limiting In Search of Marketing Equilibrium: Relationship Marketing vs Hypercompetition 425 price competition or even creating a monopoly-Uke situation. Hypercompefition is the opposite: a company should actively disrupt status quo and the current competitive advantages, both its own and those of competitors, in an environment of hypercompetition, advantages are rapidly created and eroded.

Hypercompefition trends are identified in four arenas of traditional competition (D’Aveni 1994, pp. 13-17): /. Cos/ and quality arena For example, upstarts Uke Southwest Airlines attack estabUshed carriers by slashing costs or enhancing quaUty, thus lowering the bottom of the market and raising the top of it. This behaviour counteracts the RM strategy of frequent flyers’ programmes. 2. Timing and know-hot/’ arena The first mover in the nnarket may create an advantage and sets up impediments to imitation. Followers quickly try to overcome these, fordng the first mover to change its tactics.

The know-how exploited by one company is imitated by another and imitation becomes faster and faster; eventually the innovator cannot recapture its R&D investment. 3. Strongholds arena Companies create entry barriers to keep the competition out Entrants circumvent the barriers, giving rise to a series of attacks and counterattacks. This is currently happening in inten:ontinental air services between major American carriers and national European carriers. The current war for mastery over the Intemet, with Microsoff and Netscape as the combatants, is another example. 4.

Deep pockets arena This means having more money than the competition. The finandally stronger and usuaUy bigger companies can endure price competition from smaUer companies. The latter, however, can caU upon govemment regulations and form aUiances with others, thus balancing out the financJal advantage. In marketing equilibrium, regulations is one of the balancing forces, and alliances is a collaborative RM strategy. For example, Microsoff’s financial advantage has been counteracted by the aUiance between IBM and Apple. Information technology is a driver of hypercompetition.

By using databases it is possible, and wiU be more so in the future, to quickly survey prices and other conditions, and select the best combination at each point of time. Purchasing then becomes close to the system of exchanges. But even if comparisons of suppUers are made easier for customers, so many conditions are not comparable, for example, to 426 Evert Gummesson what extent can you trust the supplier. Trust and security are basic condidons for collaboradon and trust has proven to be a driver of business in all types of sodedes (Fukuyama 1995).

D’Aveni concludes that the battle for comp>eddve advantage is eventuaUy driving the market back into a price-compieddve market. The outcome is the neodassical long-term equilibrium, although the road to this equiUbrium goes via marketing equilibrium and not just via price adjustments. He refers to the old compedfive equilibrium as looking stable because it moved so slowly that it appeared stable. Hypiercomp>eddon is a coristant state of disequiUbritim. D’Aveni deploys a revised 7Ss framework to propose hypiercompeddve strategies.

The original 7Ss — designed by the McKinsey consulting company—comprise seven factors for success: structure, strategy, systems, style, skills, staff, and shared values. Successful hypiercomp;eddve firms need a new set of Ss in order to create disrupdon (p. 31ff). The first new S is stakeholder satisfacdon, referring to new ways of creating satisfied customers and a modvated eind empowered work force. The second is strategic soothsajdng “a process of seeking out new knowledge necessary for predicting or even creating new temporary windows of opportunity that compiedtors wiU eventuaUy enter but are not now served by anyone else” (p. 2). The comparafive advantage of these two factors is “… the abiUty to win each dynamic strategic acdon with compiedtors” (p. 32). The third and fourth Ss are spieed and surprise, both capabiUdes for disrupdon. The hypercompeddve company both reacts more quickly and is proacdve, thus taking the market with surprise. The final three are tacdcs for disrupdon. Shifting the rules includes new ways of sadsfying the customers and playing the marketing game with a new set of rules. Signals refer to announcements of strategic intent with the purpose of stalling acdons and misleading compiedtors.

For example, a preannouncement of a coining product may make customers wait to see the new version and postpone planned purchases of competing products. Simultaneous and sequendal strategic thrusts “… are used by hypercompieddve firms to harass, paralyze, induce errors, or block compiedtors” (p. 34). Several acdons are taken at the same dme in combinadons that make it difficult to understand what a compiedtor is actuaUy up to. In summary, whereas RM strives for stabiUty through long-term reladonships, hypercompieddon strives for continuous disrupdon at an increasingly faster rate.

In RM, security is found in stabiUty; in hypercompeddon it is fotind in the ability to continuously counteract instabiUty. The RM concept is by many authors broadened to comprise more than the suppUer—customer dyad,’* for example, reladonships through alUances which is a way of counteracting hyp>ercompieddon. The imaginary organizadon^ is a network-based company which transcends the tradidonal organizadonal boundaries. It can more freely acquire Jind drop resources through outsourcing (or rather: resourcing) instead of investing in tradidonal growth (intemal or through acquisidon); the advantage of the deep pocket is thus offset. •See Christopher et al. (1991), Kotler (1992), and Hunt and Morgan (1994), who have approached marketing as relationships with a series of stakeholders. This is in line with the 30R approach, but flie 3ORs go further and also establish relationships based on other than the stakeholder dimension. ‘See Hedberg et al. (1994). Other terms representing the same phenomenon are virtual organizations, boundarykss organizations, and rwtwork organizations. In Search of Marketing Equilibrium: Relationship Marketing vs Hypercmnpetition 427

D’Aveni (1994) discusses the role of co-operation and collusion and says that they should only be used for hypercompetitive purposes. They are not long-term relationships, they are merely temporary strategies. He lists a number of generic instances of hypercompetitive use of collaboration (pp. 338-339): to gang up against others groups; to limit the domain of competition; to biuld resojirces; to buy time; to gain access; and to leam. Hunt and Morgan (1995) suggest a comparative advantage theory of competition within a marketing management paradigm, and they present a devastating critique of neoclassical economics.

D’Aveni’s conclusions are contrary to Hunt and Morgan’s; he rewrites neoclassical theory, using marketing management theory as a lever. Interpreted in my terms, we depart from the original and simple form of neoclassical market equilibrium, go through a phase of marketing equilibrium, and arrive at a more sophisticated level of market equilibrium. Hjrpercompietition goes beyond the neoclassical theory of perfect connpetition and restores it on a new level. Through a series of disruptive moves, where competitive advantage is surpassed, an escalation toward perfect competition develops.

This means that we are back in transaction marketing, the very evil to which RM is held to be the antidote. Conclusions for Discussion This paper has dealt with certain aspects of marketing equilibrium, one of several RM issues that preoccupy the author’s nund during the ongoing research joumey into the world of RM. ‘The paper is limited to the two trends of collaboration, advanced by the RM concept, and hypercompetition, advanced by authors on strategy and competition. A paradox is seemingly a contradiction; it is not in actual fact a contradiction. An oxymoron is a combination of two phenomena that cannot be combined.

So the first question in the beginning of the paper could be rephrased: are RM and hypercompetition forming a paradox or an oxymoron? When I read up on the current literatxire on competition, I found that the “new” competition was described as more fierce and faster than ever before. It had affinity with marketing warfare which was in vogue in the 19S0s. It certainly seemed contradictory to the RM idea of long-term relationships and collaboration. In my present state of ignorance the answer is: within the concept of the marketing equilibrium, both competition and collaboration coexist. They can do so and will do so.

Our attention has to be directed to both of them. When competition becomes hypercompetition, collaboration may become hypercollaboration. Could it be that hypercompetition is the current driver of the upsuiging interest in RM and that RM tries to neutralize the effects of hypercompetition? To be Continued As this is work in progress, the issues that have been presented are not complete and the views are tentative and wiil be further studied. Among other issues concerning marketing equilibrium that are also being studied are the following: Tlie marketing equilibrium which has so far been described could be seen as 28 Evert Gumntesson partial marketing equiUbrium. The RM researdi project is suggesting an extention into complete marketing equilibrium. It consists of a synthesis of RM and the theory of imaginary organizations where not only the market but also the organizations (suppUers, customers, competitors and others) and sodety are included in a network of interactive relationships (Hedberg et al. 1994; Gummesson 1996). In traditional marketing management and economics, the market is outside the company and n«rketing activities are directed toward extemal customers.

But there are also markets inside the company and marketing activities take place between intemal customers. This is laid bare in the treatment of the nano relationships of the 30R approach. Both intemal and extemal customers interact in networks of relationships. The boundaries between the “inside” and the “outside” have dissolved and both can be seen as parts of the same networks. Another area is the black economy with tax evasion, bribery, fraud, and organized crime as additional and disrupting forces of competition. One of the relationships in the 30R approach is named The Criminal Network.

For example, Blumberg (1989) has pointed out that the strength of the market economy — competition and the profit incentive—encourages fraud. It pays to cheat! He calls this the paradox of the market economy. Everybody is familiar with it from jobs and private consumption, but it is swept under the carpet in marketing theory and textbooks. The Literature prefers the idealized image: competition as the driver to create customer satisfaction and customer perceived quality; to give customers everything they want and are willing to pay for; and to offer numerous options for consumers.

Customers are asked about satisfaction and quality, but their knowledge is limited and the ignorance of the customer is exploited. Neither market economies through competition, nor command economies through regulations, have proven themselves capable of handling environmental and ecological issues. What has been achieved is primarily the outcome of voluntary pressure group activity and law enforcement. Competitive forces have clearly not provided enough incentive for the market to innovate and reinnovate in the field.

One of the relationship in the 30R approach is The Green Relationships, adding a relationship angle to environmental issues. Probably most of the achievements for a long time will only come through legislation (regulations), tight control and litigation (institutions). Can the marketing equilibrium conceptually include environmental and ecological issues? After the Paper Presentation: An Addendum In the discussion following its presentation, the paper was criticized on two points in peirticular: (1) The choice of the term “marketing equiUbrium”.

The critics said — and some were dearly provoked by the term — that it gives the wrong connotation and that the term is so heavily committed to neoclassical economic theory that people will not be able to see my point. Suggested substitutes were “dynamic balance” or “optimal combination”. EquiUbrium, it was claimed, conveys the idea that such a state exists and it is just a matter of time {long-term, though) before it is reached. In defence of the term {but I intend to give it more thought) I would like to claim that equilibrium can be perceived as dynamic and unattainable, but still have a value n Search of Marketing Equilibrium: Relationship Marketing vs Hypercompetition 429 in providing direction, although the journey is a never-ending journey. Perhaps the provocation as such is o( value. When a new thought or term is met with aggressions from several established scholars it may have hit a sore spot; it may even be important. The original intention was to show that equilibrium from the idealized and imrealistic assumptions of neoclassical theory could be supplemented by a marketing management-oriented equilibrium based on real-world premises.

Neoclassical economics currently seems to be no more than a computer game for adult entertainment and career boosting under the disguise of “sdence”. To me, the contrast between “market” and “marketing”, designating an economics versus a management approach but still indicating affinity, makes the term expressive. Whatever term I choose, however, I am confident that economists and “me-too” researchers wiU not be impressed. 2. “Hyper” was claimed by Americans to mean “too much”, for example a hyperactive child is active to a degree that implies mental and/or physical disorder.

The British perceived it as “very much”, for example a hypermarket which is a bigger European version of a supermarket. Maybe this is evidence of the validity of Oscar Wilde’s statement that “England and America are two countries separated by a common language”. On the other hand, maybe “too much” is also a correct interpretation. For many of us, hypercompetition is probably too much. Personally, it makes me nervous. References Blumberg, P. (1989), The Predatory Society, New York, Oxford University Press. Brandenburger, A.

M. and Nalebuff, B. J. (1996), Co-opetition, Boston, MA, Harvard Business School Press. Christopher, M. , Payne, A. and Ballant)Tie, D. (1991), Relationship Marketing, London, Heinemarm. D’Aveni, R,A. (1994), Hypercompetition, New York, The Free Press. Fukuyama, F. (1995), Trust, New York, The Free Press. Gray, B. (1989), Collaborating, San Francisco, CA, Jossey-Bass. Gronroos, C. (1994), “Quo vadis, marketing? Towards a relationship marketing paradigm”, Joumal of Marketing Martagement, 10, No. 4 Gummesson, E. 1983), “A New Concept of Marketing”, paper presented at the 1983 EMAC Annual Conference, Institut d’Etudes Commerdales de Grenoble, France, April. Gummesson, E. (1987), “The New Marketing: Developing Long-term Interactive Relationships”, Long Range Planning, 20, No. 4, pp. 10-20. Gummesson, E, (1994), “Making Relationship Marketing Operational”. The International Joumal of Service Industry Management, 5, No. 5, pp. 5-20. Gummesson, E. (1995), Relationsmarknadsforing: Frdn 4P till 30R (Relationship Marketing: From 4Ps to 3ORs), Malmo, Sweden: Liber-Hermods (forthcoming in English).

Gummesson, E. (1996), “Relationship Marketing and Imaginary Organizations: A Synthesis”, European Joumal of Marketing, 30, No. 2, pp. 31-44. Hamel, G. and Prahalad, C. K. (1994), Competing for the Future, Boston, MA: Harvard Business School Press, 1994, 430 Epert Gummesson Hedberg, B. , Dahlgren, G. , Hansson, J. and Olve, N. -G. (1994), Imagindra organisationer (Imaginary Organizations), Malmfi, Sweden: Liber-Hermods. Hunt, S. D. and Morgan, R. M. (1994), “Relationship Marketing in the Era of Network Competition”. Marketing Management, 3, No. 1, pp. 9-28. Hunt, S. D. and Morgan, R. M. (1995), “The Comparative Advantage Theory of Competition”, Joumal qf Marketing, 59, April, pp. 1-15. Kotter, P (1992), ‘Total Marketing”, Business Week Advance, Executive Brief, Vol. 2. Moore, J. E (1996), The Death of Competition, Chichester, UK, Wiley. North, D. C. (1993), “Economic Performance Through Time”. Stockholm, The Nobel Foundation, Prize Lecture in Economic Science in Memory qf Alfred Nobel, Stockholm, December 9. Porter, M. E. (1980), Competitive Strategy, New York, The Free Press. Porter, M. E. 1985), Competitive Advantage, New York, The Free Press. Senge, P. M. (1990), The Fifth Discipline. New York: Doubleday/Currency. Sheth, J. N. (1994), “The Donnain of Relationship Marketing”. Handout at the Sectmd Research Conference on Relationship Marketing. Centre for Relationship Marketing, Emory University, Atlanta, GA, June. Verbeke, W. and Peelen, E. (1996), “Redefining the New SeUing Practices in an Era of Hyper Competition”. Paper presented at the workshop Relationship Marketing in an Era qf Hypercompetition, Erasmus University and EIASM, Rotterdam, May.

The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labor.”

This is the first paragraph excerpted from Adam Smith’s The Wealth of Nations. is regarded as the Father of Modern Economics, and the Father of Capitalism. Smith’s most famous work, The Wealth of Nations was the first systematic attempt to explain the workings of the economy in market terms, emphasizing the importance of the division of labor.

The fundamental element in Smith’s viewpoint is his focus on the importance of the free market in ensuring the highest level of quality of commodities at the lowest prices. Smith’s philosophy is that human beings are naturally individualistic.

He furthers political theories that emphasize the individual, and proclaims the worth of each individual. He believes that human beings will interact most effectively when they live in a society of economic freedom, with individualistic philosophies that tend to emphasize what people can do as individuals, not what they can do as groups. In The Wealth of Nations, he states that: “In a free economic system, an individual is led by an invisible hand to promote an end which was no part of his intention…

By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.” We can understand in this excerpt that because individuals constantly seek to better their own condition, they will continually direct resources to better uses when it is possible to do so. This will result to their and other people’s advantage which can consequently better or improve the conditions of others as well.

Adam Smith believes that the tenets of the free market system can improve the living conditions of individuals. In his view, free markets allow all individuals in an economy to improve their conditions. This collective improvement by individuals results to national improvement – the wealth of nations. He believes that a free market enables individuals’ significant self interest to exercise itself within the limits established by a government that controls people from performing positively bad actions.

Smith states: “Man has almost constant occasion for the help of his brethren, and it is vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them…It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

This paragraph very well sums up Adam Smith’s philosophy that individualistic tendencies can very well result to the improvement of others, and to the wealth of nations.

Smith greatly believes on the benefits of the division of Labor. The division of labor is a fundamental component of economic growth and it is this division allows the wealth of nations and individuals to develop. The division of labor requires a free market in order to be most effective.

Where there is a closed or highly regulated market, or monopolies or guilds control productive practices, inefficiencies can often result. Subsequent to John Locke, Smith also sees labor as the ultimate source for all value. Smith states: “Labor…is the real measure of the exchangeable value of all commodities.”

Resources:

1.      Great Political Thinkers. Plato to the Present. Sixth Edition. William Ebenstein. Allan Ebenstien. Chapter 23: Smith. Pages 492-497.

By definition, a free enterprise economy (also known as: capitalism or a free market economy) is an economic system controlled chiefly by the individuals and private companies instead of the government. Characteristics of a free-enterprise system include economic freedom, voluntary exchange, private property, and the freedom of profit motive. Capitalist societies generally achieve a higher standard of living because of the incentive to work: capitalism prefers harder and more efficient workers. Economic freedom is a principal of a free market economy, which allows people to decide how they will earn and spend their income.Economy The meaning of private property is those within a capitalist society have the right to buy and sell what they own or produce through market applications.

This gives both what they want without the need of government regulation of how much they can trade and at what costs. ic freedom also yields to companies so they may choose which goods and services to produce and how much to charge for them based on the wants, or demands of the people. Competition between producers is permitted and this leads to better quality products.The hardest workers are the ones who remain employed t for it raises standards and the level of production. Through this engagement, both the buyer and the seller are free to trade with one another and make economical or material gains off the trade. A free enterprise economy is based on the ideals that private citizens own business and production. A voluntary exchange allows buyers and sellers to engage freely and willingly in the market economy.

Profit motive can be described as people and factors of productions improve their well being by making money as they see fit.This regulates the amount and kind of products produced to accommodate the population. The government has no control on what one buys and sells, and workers can work for whomever they wish with no restrictions. In a wealthy free market economy, consumers are faced with many options and ‘trade offs’, so the best of the bests are the ones that survive. For example, homeowners can sell their homes as and when they please and disagree. This is the basic ideal in a capitalist society, people may control their possessions as they wish. Some topics in this essay: economic freedom, market economy, free market economy, profit motive, free market, voluntary exchange, private property, freedom voluntary exchange, exchange private property, voluntary exchange private, exchange private, buyers sellers, economic freedom voluntary, freedom voluntary, free enterprise, nterprise economy (also known as: capitalism or a free market economy) is an economic system controlled chiefly by the individuals and private companies instead of the government.

Characteristics of a free-enterprise system include economic freedom, voluntary exchange, private property, and the freedom of profit motive.Capitalist societies generally achieve a higher standard of living because of the incentive to work: capitalism prefers harder and more efficient workers. Economic freedom is a principal of a free market economy, which allows people to decide how they will earn and spend their income. Econom | | | | | | The meaning of private property is those within a capitalist society have the right to buy and sell what they own or produce through market applications. This gives both what they want without the need of government regulation of how much they can trade and at what costs. c freedom also yields to companies so they may choose which goods and services to produce and how much to charge for them based on the wants, or demands of the people. Competition between producers is permitted and this leads to better quality products.

The hardest workers are the ones who remain employed t for it raises standards and the level of production. Through this engagement, both the buyer and the seller are free to trade with one another and make economical or material gains off the trade. A free enterprise economy is based on the ideals that private citizens own business and production.A voluntary exchange allows buyers and sellers to engage freely and willingly in the market economy. Profit motive can be described as people and factors of productions improve their well being by making money as they see fit. This regulates the amount and kind of products produced to accommodate the population. The government has no control on what one buys and sells, and workers can work for whomever they wish with no restrictions.

In a wealthy free market economy, consumers are faced with many options and ‘trade offs’, so the best of the bests are the ones that survive.For example, homeowners can sell their homes as and when they please and disagree. This is the basic ideal in a capitalist society, people may control their possessions as they wish. Some topics in this essay: , economic freedom, market economy, free market economy, profit motive, free market, voluntary exchange, private property, freedom voluntary exchange, exchange private property, voluntary exchange private, exchange private, buyers sellers, economic freedom voluntary, freedom voluntary, free enterprise, | |