FTMBA2020_II Economics of Corporate & Competitive Strategy

Markets are a fundamental economic mechanism of allocating scarce resources in an economy. Competition is an important driving force for the efficient allocation of resources. In competitive markets the purchasing prices of goods are determined by the interaction of market supply and market demand. Market supply results from the independent decisions of firms whose managers aim to maximize economic profit by producing and selling the optimal amount of a good at the cost minimizing use of input factors (such as capital and labor). Market demand is the result of the independent decisions of individual consumers who maximize their net benefit from consuming the produced goods. Market power, externalities, informational deficiencies, and strategic behavior of market participants may impair the functioning of markets.