According to the American Marketing Association: "A market refers to the collective needs of potential buyers of a good or service." Simply put, the market is the area where buyers and sellers trade, there are buyers, there are sellers, there are goods or services, and there are demands. We can simply understand the degree of market competition, demand and supply models, and marginal cost models.
01 Degree of market competition
The microscopic part of "Western Economics" divides the market into four models: perfect competition market, complete monopoly market, monopoly competition market and oligopoly market. Their definitions and characteristics are as follows:
- Perfectly competitive market: refers to the competition without any hindrance and interference, which is characterized by the fact that producers and consumers can enter and exit freely, and the products or services provided are completely indistinguishable. Such a market basically does not exist;
- Complete monopoly of the market: It means that only one manufacturer provides products to the market. It is characterized by the fact that it is extremely difficult for other manufacturers to enter the industry and has the right to set market prices. It is common in the energy and railway industries, etc.;
- Monopolistic competition: refers to both monopoly and competition, in an intermediate state between complete monopoly and perfect competition, characterized by the fact that it is easier for other manufacturers to enter the industry, and there is a fierce competitive relationship between manufacturers providing differentiated products;
- Oligopoly: It refers to the supply of products controlled by a few manufacturers, which is between monopolistic competition and complete monopoly. It is characterized by interdependence among manufacturers and no one can change it at will.
From the perspective of economic benefits, the economic benefits of the perfect competition market are the highest, the economic benefits of the monopoly competition market are higher, the economic benefits of the oligopoly market are lower, and the economic benefits of the complete monopoly market are the lowest; from the perspective of product differences, perfect competition There is no difference in the products in the market, there are differences in the products in the monopoly competition market and the oligopoly market, and the products in the complete monopoly market are irreplaceable.
The B-end product manager needs to fully understand the market, and can divide the market from an economic point of view, and clarify which market model the B-end product is in, so as to facilitate further market insight and analysis.
02Demand and supply model
The microscopic part of "Western Economics" divides the market into four models: perfect competition market, complete monopoly market, monopoly competition market and oligopoly market. Their definitions and characteristics are as follows:
It is necessary to know the market and understand the market economy. In a market economy, resource allocation is carried out through the price mechanism, and prices are determined through demand and supply models. Therefore, it is necessary for B-end product managers to understand demand and supply, which are the two basic theories of economics and the cornerstone of effective market operation.
1. Demand model
Demand is the willingness of consumers to buy a certain quantity of goods at a certain price within a certain period of time. Factors that affect demand include the price of the product itself, the price of competing products, the income level of consumers, and consumers' expectations for the future.
According to the theory of economics, the expression of demand usually uses a demand curve to represent the relationship between the quantity demanded and the price of a commodity, as shown in the figure below. When other factors remain unchanged, the quantity demanded of a commodity and the price of a commodity change in opposite directions, that is, when the price of a commodity rises, the quantity demanded decreases; when the price of a commodity falls, the quantity demanded increases.
Most commodities conform to this demand curve theory, and a few commodities are exceptions. For example, the "Giffen commodity" in Western economics, which is generally a low-value commodity necessary for life, was first discovered by Robert Giffen in Ireland in the 19th century: when the price of potatoes rose, , people consume more potatoes. The demand curve can help B-end product managers better understand the relationship between market demand and price. Of course, there are many factors that affect demand. This theory is quite instructive.
2. Supply model
Supply is the ability of a firm to supply a certain quantity of goods at a certain price level within a certain period of time. Factors affecting supply include the price of the commodity itself, the price of competing products, the prices of factors of production, and the manufacturer's expectations for the future.
Similarly, according to economic theory, the expression of supply usually uses a supply curve to represent the relationship between the quantity supplied and the price of a commodity, as shown in the figure below. When other factors remain unchanged, the quantity supplied and the price of a commodity change in the same direction, that is, when the price of a commodity rises, the quantity supplied rises; when the price of a commodity falls, the quantity supplied decreases.
There are many factors that affect supply, and most commodities are suitable for this supply curve theory. The supply curve can help B-end product managers better understand the relationship between market supply and price.
3. Equilibrium price
When we put demand and supply together, they interact to produce an equilibrium price, which is the price at which the demand and supply prices of a commodity are equal. As shown in the picture.
Equilibrium price is a state of balance produced by constant changes in supply and demand, where all parties are evenly matched and relatively static. Whether it is a change in demand, a change in supply, or a joint change in demand and supply, when other forces break this equilibrium relationship, a new equilibrium state will be formed again. There are many applications of equilibrium price in the real world. The government can use it to adjust prices, and B-end product managers can understand its price formation mechanism.
03 Marginal cost
Marginal cost can help us understand the relationship between marginal cost, total cost, average cost and output and cost among commodities, and guide us to calculate input and output to a certain extent. Marginal cost is the increase in total cost caused by the increase in output, and its curve is shown in the figure below.
As the output increases, the marginal cost becomes smaller and smaller; when the marginal cost reaches the lowest point, that is, the maximum value of the average output; after that, as the output increases, the marginal cost gradually increases. This is related to the fixed equipment produced by the enterprise. When the production capacity is fixed, no matter how many people are added, three shifts a day can only increase the limited output, and the variable costs brought about by the newly added people are more. B-side product managers can learn from this theory and apply it to the input and output calculation of B-side products.