1. Contemporary Industrial Markets (CIM)
Almira Yusupova
Class

2. Almira Yusupova
(Юсупова Альмира Талгатовна)
IEIE SB RAS, NSU
Courses: Industrial Economics, Contemporary Industrial Markets, Economic Nature of Leasing, International Business;
Research interests: - leasing, industrial markets in Russia, innovative entrepreneurship

3. Case: Mega Perspectives of Nanotechnologies

4. 1 – financial resources
2 – technology, intellectual property, key competencies;
3 – nano modifiers
4 – technology and guidance

5. Questions to discuss
Main risks, advantages and disadvantages of the “Establishing new enterprise” strategy
Other schemes of commercialization

6. Course Format - classes on Fridays;
- all materials in “Econom” system;
- Assessment:
Assignment on leadership analysis with presentations (10 points);
Final exam – paper analysis (10 points);
Corse is supposed to be finishes at the end of March

7. Industrial Economics Industrial Organization

8. Topics under Discussion
Models of firms’ behavior of firms and industrial organization of contemporary markets;
Related policy issues, competition policy;
Applications of basic models and limitations of the theory;

9. Definition of Industry (industrial market)
Set of firms producing substitutes; Competition between these firms either exists or is possible in short term or long term period.

10. Importance of Definition: if industrial market is determined incorrectly
Government
Wrong direction of state support;(too broad market – support becomes too diffused, too narrow – artificial disproportions )
Ineffective antitrust regulation; (too broad market – growth of monopolies, too narrow – difficulties for emerging firms);

11. If industrial market is determined incorrectly
Firm:
New market entrance – too broad market - high possibility to loose promising area; too narrow – wrong analysis of competitors)

12. Give examples of new markets
Why did they appear?

13. Market Structure Analysis
Basic paradigm Structure-Conduct-Performance
Edward Mason (1930), Joseph Bain (1950)
Firm’s conduct is related to market structure and influences on the performance of that market;

14. Market Structure
Conduct
Performance

15. Theoretical Aspect: Importance of Market Structure
Each firm operates at industrial market. Market structure influences directly on firms’ decisions, behavior models and results.
Empirical evidence of the idea of Structure – Conduct – Performance scheme.

16. Types of Market Structure
Perfect competition
Imperfect competition
competition
Monopoly
Oligopoly

17. Case analysis: discuss possible directions of companies development

18. IT company in east England – successful development;
Initial case – success story
Companies’ office employed 30 employees. .
Company’s activities: administrating and monitoring of remote systems, technical support of clients regardless their location. Many problems were solved with the help of Internet. Consumers got qualified support and had an opportunity to reduce labor costs.
Problem – support business growth and avoid high overheads related to administration.
Decision : Outsourcing . Efforts should be put in profitable activities only. Finance (non key issues), HR and marketing were committed to reliable partners. Special detailed scheme was elaborated.
Result : Great success. Main attention was paid to partners’ selection. All contractual, financial and technical issues were studied and discusses. All expectations were defined and taken into account.
100% growth ob sales during one year;.
Possible ways of development :
- Work with existing clients and increase their number;
- Create joint venture on outsourcing;

19. Market concentration; Large corporations’ positions

20. Concentration Important indicator of market structure
Concentration - competition – opposite characteristics;
Quantitative estimation;

21. Requirements to concentration indicators:
Convenience for calculation and interpretation;
Relevance to any market (regardless size);
Meaning from 0 to 1;
Graphical illustration;
Sales transfer reflection;
Entry-exit reflection;
M&A reflection;

22. CRn = Concentration Ratio n<N; CR4, CR8, CR20, CR50
Different criteria for rating
CR1 matters; ,

23. Herfindahl – Hirschman index
HHI =
Antitrust policy;
Maximum 1 or 10000;
Relation to variance;

24. Conventional Limits HHI < 1000 – low concentration;
1000 < HHI < 1800 – moderate concentration;
HHI > 1800 – high concentration;

25. Lerner Index – market power indicator;
L = (P-MC)/P, where: P – price;
МС marginal costs;
Percept competition - minimum 0;
Only one firm (monopoly);
Li = (P-MCi)/P
Weighted average;
Many interpretations;

26. Concentration – Competition – opposite characteristics
Which structure is better?

27. Competition Motivation for better resources utilization;
Effective mechanism for market coordination;

28. Importance of Competition Assessment
Competition development– criterion for decision making;
Indicator for economic policy;
Foundation for institutional development;

29. Classic Approach SCP paradigm:
Higher concentration – lower competition (barriers, prices);
Connection between concentration and market power
Variety of interpretations;

30. Alternative Approach
J. Sutton’s theory– competition determines concentration
Higher competition - lower motivation to enter the market – higher concentration;
Competition estimation;

31. Competition on Russian markets
Perceptions of market participants
Number of studies on the level and role of competition

32. Ambiguity of Results
Controversial role of competition: long term period – increase of profitability; short-term period – decrease of profitability, financial instability;
Rational firm’s behavior – obtain dominant position;

33. Russian Markets http://www.hse.ru/data/2011/04/05/1211687919/A_D_K_Yu.pdf
Foreign trade turnover 45% GDP,
Many domestic companies take part in global competition: as exporters on foreign markets or on domestic markets with importers;

34. Competition on Russian Markets?
Most companies feel competition;
At the same time 10-20% companies don’t pay attention on competition (mid- 2000s); Result doesn’t depend on the type of industry (regulated industries)
One third – strong competition with domestic and foreign firms;
great influence of competition was marked by 80% of companies (HSE study of processing industry);

35. Main Competitors of Russian Firms (survey data)
- Russian companies;
- Import;
- Foreign firms' subsidiaries in Russia
Integration helps to resist competition;

36. Competition Influence:
Foreign competitors: active restructuring – new products, technologies, marketing;
Domestic competitors: passive restructuring– employment, phasing out unprofitable products;
Requirements to institutional environment - fair competition, access to financial resources;

37. Competition Influence: Innovations
! Inverse U curve – relations between innovations and competition; Two effects: positive on motivation and negative on profit (as main source of finance)
Excess competition;
Differences between old and new companies;