1.
Market structure
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In economics, market structure is an organisational and other characteristics of a market. Monopolistic competition, a type of competition such that many producers sell products or services that are differentiated from one another. In monopolistic competition, a firm takes the prices charged by its rivals as given and this market structure exists when there are multiple sellers who are attempting to seem different than each other. Oligopoly, in which a market is run by a number of firms that together control the majority of the market share. Duopoly, a case of an oligopoly with two firms. Monopsony, when there is only a single buyer in a market, oligopsony, a market where many sellers can be present but meet only a few buyers. Monopoly, where there is only one provider of a product or service, natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. The elements of Market Structure include the number and size distribution of firms, entry conditions, and these somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade. In other words, competition can align the seller’s interests with the interests and can cause the seller to reveal his true costs. The correct sequence of the structure from most to least competitive is perfect competition, imperfect competition, oligopoly
2.
Market (economics)
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A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services, Markets can also be worldwide, for example the global diamond trade. National economies can be classified, for example as developed markets or developing markets, in mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction, a major topic of debate is how much a given market can be considered to be a free market, that is free from government intervention. However it is not always clear how the allocation of resources can be improved since there is always the possibility of government failure, a market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enables the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market sometimes emerges more or less spontaneously but is often constructed deliberately by human interaction in order to enable the exchange of rights of services. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. Markets vary in form, scale, location, and types of participants, as well as the types of goods and services traded, nevertheless, violence and they apply the market dynamics to facilitate information aggregation. However, market prices may be distorted by a seller or sellers with monopoly power, such price distortions can have an adverse effect on market participants welfare and reduce the efficiency of market outcomes. Also, the level of organization and negotiating power of buyers and sellers markedly affects the functioning of the market. Markets are a system, and systems have structure, the structure of a well-functioning market is defined by the theory of perfect competition. Market failures are often associated with time-inconsistent preferences, information asymmetries, non-perfectly competitive markets, principal–agent problems, externalities, among the major negative externalities which can occur as a side effect of production and market exchange, are air pollution and environmental degradation. There exists a popular thought, especially among economists, that markets would have a structure of a perfect competition
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Industry
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Industry is the production of goods or related services within an economy. The major source of revenue of a group or company is the indicator of its relevant industry, when a large group has multiple sources of revenue generation, it is considered to be working in different industries. Manufacturing industry became a key sector of production and labour in European and North American countries during the Industrial Revolution, upsetting previous mercantile and this came through many successive rapid advances in technology, such as the production of steel and coal. Following the Industrial Revolution, possibly a third of the economic output are derived that is from manufacturing industries. Many developed countries and many developing/semi-developed countries depend significantly on manufacturing industry, Industries, the countries they reside in, and the economies of those countries are interlinked in a complex web of interdependence. Industries can be classified in a variety of ways, at the top level, industry is often classified according to the three-sector theory into sectors, primary, secondary, and tertiary. Some authors add quaternary or even quinary sectors, over time, the fraction of a societys industry within each sector changes. Below the economic sectors there are other more detailed industry classifications. These classification systems commonly divide industries according to functions and markets. Market-based classification systems such as the Global Industry Classification Standard and the Industry Classification Benchmark are used in finance, the International Standard Industrial Classification of all economic activities is the most complete and systematic industrial classification made by the United Nations Statistics Division. ISIC is a classification of economic activities arranged so that entities can be classified according to the activity they carry out. The Industrial Revolution led to the development of factories for large-scale production, originally the factories were steam-powered, but later transitioned to electricity once an electrical grid was developed. The mechanized assembly line was introduced to parts in a repeatable fashion. This led to significant increases in efficiency, lowering the cost of the end process, later automation was increasingly used to replace human operators. This process has accelerated with the development of the computer and the robot, historically certain manufacturing industries have gone into a decline due to various economic factors, including the development of replacement technology or the loss of competitive advantage. An example of the former is the decline in manufacturing when the automobile was mass-produced. A recent trend has been the migration of prosperous, industrialized nations towards a post-industrial society and this is manifested by an increase in the service sector at the expense of manufacturing, and the development of an information-based economy, the so-called informational revolution. In a post-industrial society, manufacturing is relocated to more favourable locations through a process of off-shoring
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Game theory
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Game theory is the study of mathematical models of conflict and cooperation between intelligent rational decision-makers. Game theory is used in economics, political science, and psychology, as well as logic, computer science. Originally, it addressed zero-sum games, in one persons gains result in losses for the other participants. Today, game theory applies to a range of behavioral relations, and is now an umbrella term for the science of logical decision making in humans, animals. Modern game theory began with the idea regarding the existence of equilibria in two-person zero-sum games. Von Neumanns original proof used Brouwer fixed-point theorem on continuous mappings into compact convex sets and his paper was followed by the 1944 book Theory of Games and Economic Behavior, co-written with Oskar Morgenstern, which considered cooperative games of several players. The second edition of this provided an axiomatic theory of expected utility. This theory was developed extensively in the 1950s by many scholars, Game theory was later explicitly applied to biology in the 1970s, although similar developments go back at least as far as the 1930s. Game theory has been recognized as an important tool in many fields. With the Nobel Memorial Prize in Economic Sciences going to game theorist Jean Tirole in 2014, John Maynard Smith was awarded the Crafoord Prize for his application of game theory to biology. Early discussions of examples of two-person games occurred long before the rise of modern, the first known discussion of game theory occurred in a letter written by Charles Waldegrave, an active Jacobite, and uncle to James Waldegrave, a British diplomat, in 1713. In this letter, Waldegrave provides a mixed strategy solution to a two-person version of the card game le Her. James Madison made what we now recognize as an analysis of the ways states can be expected to behave under different systems of taxation. In 1913 Ernst Zermelo published Über eine Anwendung der Mengenlehre auf die Theorie des Schachspiels and it proved that the optimal chess strategy is strictly determined. This paved the way for more general theorems, the Danish mathematician Zeuthen proved that the mathematical model had a winning strategy by using Brouwers fixed point theorem. In his 1938 book Applications aux Jeux de Hasard and earlier notes, Borel conjectured that non-existence of mixed-strategy equilibria in two-person zero-sum games would occur, a conjecture that was proved false. Game theory did not really exist as a field until John von Neumann published a paper in 1928. Von Neumanns original proof used Brouwers fixed-point theorem on continuous mappings into compact convex sets and his paper was followed by his 1944 book Theory of Games and Economic Behavior co-authored with Oskar Morgenstern
5.
Strategic planning
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Strategic planning is an organizations process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy, Strategic planning became prominent in corporations during the 1960s and remains an important aspect of strategic management. It is executed by strategic planners or strategists, who involve many parties and research sources in their analysis of the organization, Strategy has many definitions, but generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions. A strategy describes how the ends will be achieved by the means, the senior leadership of an organization is generally tasked with determining strategy. Strategy can be planned or can be observed as a pattern of activity as the organization adapts to its environment or competes, Strategy includes processes of formulation and implementation, strategic planning helps coordinate both. However, strategic planning is analytical in nature, strategy formation itself involves synthesis via strategic thinking, as such, strategic planning occurs around the strategy formation activity. Strategic planning is a process and thus has inputs, activities, outputs and this process, like all processes, has constraints. It may be formal or informal and is typically iterative, with feedback loops throughout the process, some elements of the process may be continuous and others may be executed as discrete projects with a definitive start and end during a period. Strategic planning provides inputs for strategic thinking, which guides the actual strategy formation, the first two elements relate to factors internal to the company, while the latter two relate to factors external to the company. These elements are considered throughout the planning process. Data is gathered from a variety of sources, such as interviews with key executives, review of available documents on the competition or market, primary research, industry studies. This may be part of an intelligence program. Inputs are gathered to support an understanding of the competitive environment and its opportunities. Other inputs include an understanding of the values of key stakeholders, such as the board, shareholders and these values may be captured in an organizations vision and mission statements. A variety of strategic planning tools may be completed as part of planning activities. The organizations leaders may have a series of questions they want answered in formulating the strategy and gathering inputs, such as, what is considered value to the customer or constituency. Which products and services should be included or excluded from the portfolio of offerings, what is the geographic scope of the organization. What differentiates the organization from its competitors in the eyes of customers, which skills and resources should be developed within the organization
6.
Competition
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It arises whenever at least two parties strive for a goal which cannot be shared, where ones gain is the others loss. Competition occurs naturally between living organisms which co-exist in the same environment, for example, animals compete over water supplies, food, mates, and other biological resources. Humans usually compete for food and mates, though when these needs are met deep rivalries often arise over the pursuit of wealth, power, prestige, and fame. Competition is often considered to be the opposite of cooperation, however in the real world, optimal strategies to achieve goals are studied in the branch of mathematics known as games theory. Also competition inside a company is usually stimulated with the purpose of meeting and reaching higher quality of services or improved products that the company may produce or develop. Competition can have both beneficial and detrimental effects, many evolutionary biologists view inter-species and intra-species competition as the driving force of adaptation, and ultimately of evolution. However, some disagree, citing competition as a driving force only on a small scale. Some social Darwinists claim that competition also serves as a mechanism for determining the best-suited group, positively, competition may serve as a form of recreation or a challenge provided that it is non-hostile. On the negative side, competition can cause injury and loss to the organisms involved, competition within, between, and among species is one of the most important forces in biology, especially in the field of ecology. Third parties within a species often favour highly competitive strategies leading to extinction when environmental conditions are harsh. Competition is also present between species, when resources are limited, several species may depend on these resources. Thus, each of the species competes with the others to access to the resources. As a result, species less suited to compete for the resources may die out unless they adapt by character dislocation, according to evolutionary theory, this competition within and between species for resources plays a significant role in natural selection. This is illustrated by living plant communities where asymmetric competition and competitive dominance frequently occur, game theory is the study of mathematical models of conflict and cooperation between intelligent rational decision-makers. Game theory is used in economics, political science, and psychology, as well as logic, computer science, biology. Originally, it mainly addressed zero-sum games, in one persons gains result in losses for the other participants. Game theory is a method used in mathematical economics and business for modeling competing behaviors of interacting agents. This research usually focuses on particular sets of strategies known as solution concepts or equilibria, a common assumption is that players act rationally
7.
Collusion
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It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities. It can involve wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties, in legal terms, all acts effected by collusion are considered void. In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the structure of oligopoly. Cartels are a case of explicit collusion. Collusion which is overt, on the hand, is known as tacit collusion. However, if firms collude to all prices, loss of sales is minimized. This benefits the colluding firms at the cost of efficiency to society, one variation of this traditional theory is the theory of kinked demand. Several examples of collusion in the United States include, Market division and price-fixing among manufacturers of electrical equipment in the 1960s. An attempt by Major League Baseball owners to restrict players salaries in the mid-1980s, Market division and output determination of livestock feed additive, called lysine, by companies in the US, Japan and South Korea in 1996, Archer Daniels Midland being the most notable of these. Chip dumping in poker or any other high stake card game and this allows each firm to see how and why every other firm is pricing their products. If the practice of the industry causes more complicated pricing, which is hard for the consumer to understand and this causes industries to have essentially the same prices and compete on advertising and image, something theoretically as damaging to consumers as normal price fixing. There can be significant barriers to collusion, in any given industry, these may include, The number of firms, As the number of firms in an industry increases, it is more difficult to successfully organize, collude and communicate. Cost and demand differences between firms, If costs vary significantly between firms, it may be impossible to establish a price at which to fix output. Cheating, There is considerable incentive to cheat on collusion agreements, although lowering prices might trigger price wars and this phenomenon is frequently referred to as chiseling. Potential entry, New firms may enter the industry, establishing a new baseline price, Economic recession, An increase in average total cost or a decrease in revenue provides incentive to compete with rival firms in order to secure a larger market share and increased demand. Anticollusion legal framework and collusive lawsuit, collusive lawsuit Conscious parallelism Corporate crime Baseball collusion Cartel Vives, X. Oligopoly pricing, MIT Press, Cambridge MA Tirole, J. The Theory of Industrial Organization, MIT Press, Cambridge MA Tirole, J. Hierarchies and Bureaucracies, Journal of Law Economics and Organization, vol
8.
Monopoly
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A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors, in economics, a monopoly is a single seller. In law, a monopoly is an entity that has significant market power, that is. Although monopolies may be big businesses, size is not a characteristic of a monopoly, a small business may still have the power to raise prices in a small industry. A monopoly is distinguished from a monopsony, in there is only one buyer of a product or service. Likewise, a monopoly should be distinguished from a cartel, in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in one or a few entities have market power and therefore interact with their customers. Monopolies can be established by a government, form naturally, or form by integration, in many jurisdictions, competition laws restrict monopolies. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly, There are four basic types of market structures in traditional economic analysis, perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a structure in which a single supplier produces, if there is a single seller in a certain market and there are no close substitutes for the product, then the market structure is that of a pure monopoly. Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced and this is termed monopolistic competition, whereas in oligopoly the companies interact strategically. Most economic textbooks follow the practice of explaining the perfect competition model. The boundaries of what constitutes a market and what does not are relevant distinctions to make in economic analysis, in a general equilibrium context, a good is a specific concept including geographical and time-related characteristics. Most studies of market structure relax a little their definition of a good, price Maker, Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm. High Barriers, Other sellers are unable to enter the market of the monopoly, single seller, In a monopoly, there is one seller of the good, who produces all the output. Therefore, the market is being served by a single company, and for practical purposes. Price Discrimination, A monopolist can change the price or quantity of the product and he or she sells higher quantities at a lower price in a very elastic market, and sells lower quantities at a higher price in a less elastic market
9.
Cartel
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A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are organized to control the prices of purchased inputs, antitrust laws forbid cartels, however, they continue to exist nationally and internationally, openly and secretly, formally and informally. Note that an entity that holds a monopoly by this definition cannot be a cartel. Cartels usually occur in oligopolies, where there are a number of sellers. Bid rigging is a type of cartel. People of the same trade seldom meet together, even for merriment and diversion, private international cartels had an average price increase of 28%, whereas domestic cartels averaged 18%. Less than 10% of all cartels in the failed to raise market prices. This has caused many cartels that attempt to set prices to be unsuccessful in the long term. Empirical studies of 20th century cartels have determined that the duration of discovered cartels is from 5 to 8 years. However, once a cartel is broken, the incentives to form the cartel return, publicly-known cartels that do not follow this cycle include, by some accounts, the Organization of the Petroleum Exporting Countries. Price fixing is often practiced internationally, when the agreement to control price is sanctioned by a multilateral treaty or protected by national sovereignty, no antitrust actions may be initiated. Examples of such price fixing include oil whose price is partly controlled by the supply by OPEC countries, also international airline tickets have prices fixed by agreement with the IATA, a practice for which there is a specific exception in antitrust law. International price fixing by private entities can be prosecuted under the antitrust laws of more than 100 countries, examples of prosecuted international cartels are lysine, citric acid, graphite electrodes and bulk vitamins. OPEC, As its name suggests, OPEC is organized by sovereign states and it cannot be held to antitrust enforcement in other jurisdictions by virtue of the doctrine of state immunity under public international law. However, members of the group do frequently break rank to increase production quotas, an example of a new international cartel is the one created by the members of the Asian Racing Federation and documented in the Good Neighbor Policy signed on September 1,2003. Bishop, Simon and Mike Walker, The Economics of EC Competition Law, global Price Fixing, 2nd Paperback Edition. Antitrust and global capitalism 1930–2004, New York 2006, hexner, Ervin, The International Steel Cartel, Chapel Hill 1943. Ein Beitrag zur Frage der Organisation der Volkswirtschaft, Innsbruck 1883, levenstein, Margaret C. and Valerie Y
10.
OPEC
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Organization of the Petroleum Exporting Countries is an intergovernmental organization of 13 nations, founded in 1960 in Baghdad by the first five members, and headquartered since 1965 in Vienna. The organization is also a significant provider of information about the oil market. As of January 2017, OPECs members are Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela. Two-thirds of OPECs oil production and reserves are in its six Middle Eastern countries that surround the oil-rich Persian Gulf, the effect can be particularly strong when wars or civil disorders lead to extended interruptions in supply. In the 1970s, restrictions in oil production led to a rise in oil prices and OPECs revenue. In December 2014, OPEC and the oil men ranked as #3 on Lloyds list of the top 100 most influential people in the shipping industry. As of January 2017, OPEC has 13 member countries, six in the Middle East, five in Africa, in October 2015, Sudan formally submitted an application to join, but it is not yet a member. Similar concerns prompted Gabon to suspend membership in January 1995, it rejoined in July 2016. In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of year, having become a net importer of oil. It rejoined the organization in January 2016, but announced another suspension of its membership at year-end. Some commentators consider that the United States was a de facto member of OPEC during its occupation of Iraq. But this is not borne out by the minutes of OPEC meetings, since the 1980s, representatives from Egypt, Mexico, Norway, Oman, Russia, and other oil-exporting nations have attended many OPEC meetings as observers. This arrangement serves as a mechanism for coordinating policies. The OPEC Conference is the authority of the organization. The chief executive of the organization is the OPEC Secretary General, the Conference ordinarily meets at the Vienna headquarters, at least twice a year and in additional extraordinary sessions when necessary. It generally operates on the principles of unanimity and one member, one vote, at various times, OPEC members have displayed apparent anti-competitive cartel behavior through the organizations agreements about oil production and price levels. OPEC members strongly prefer to describe their organization as a modest force for market stabilization, despite popular sentiment against OPEC, legislative proposals to limit the organizations sovereign immunity, such as the NOPEC Act, have so far been unsuccessful. Indeed, over the course of market cycles, oil reserves can themselves become a source of conflict and instability
11.
Perfect competition
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In economics and general equilibrium theory, a perfect market is defined by several conditions, collectively called perfect competition. Perfect information – All consumers and producers know all prices of products, homogeneous products – The products are perfect substitutes for each other. Well defined Property rights – These determine what may be sold, profit maximization of sellers – Firms sell where the most profit is generated, where marginal costs meet marginal revenue. Rational buyers, Buyers make all trades that increase their economic utility, No externalities – Costs or benefits of an activity do not affect third parties. This criteria also excludes any government intervention, zero transaction costs – Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market. Non-increasing returns to scale and no network effects – The lack of economies of scale or network effects ensures that there always be a sufficient number of firms in the industry. This equilibrium will be a Pareto optimum, meaning that nobody can be better off by exchange without making someone else worse off. Such markets are efficient, as output will always occur where marginal cost is equal to marginal revenue. But perfectly competitive markets are not necessarily productively efficient as output will not always occur where marginal cost is equal to average cost, in perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost. This implies that a factors price equals the marginal revenue product. It allows for derivation of the curve on which the neoclassical approach is based. This is also the reason why a monopoly does not have a supply curve, the abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other, very specific conditions such as that of monopolistic competition. Real markets are never perfect, but range from close-to-perfect to very imperfect, share and foreign exchange markets are commonly said to be the most similar to the perfect market. The real estate market is an example of an imperfect market. In a perfect market the sellers operate at zero economic surplus, normal profit is a component of costs and not a component of business profit at all. It represents the opportunity cost, as the time that the owner spends running the firm could be spent on running a different firm. In other words, the cost of normal profit varies both within and across industries, it is commensurate with the associated with each type of investment. Only normal profits arise in circumstances of perfect competition when long run equilibrium is reached
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Welfare economics
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Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being at the aggregate level. The field of economics is associated with two fundamental theorems. The first states that certain assumptions, competitive markets produce efficient outcomes. The second states that given further restrictions, any Pareto efficient outcome can be supported as a market equilibrium. Thus a social planner could use a social function to pick the most equitable efficient outcome. Because of welfare economics close ties to social theory, Arrows impossibility theorem is sometimes listed as a third fundamental theorem. Attempting to apply the principles of welfare economics gives rise to the field of public economics, the early Neoclassical approach was developed by Edgeworth, Sidgwick, Marshall, and Pigou. It assumes the following, Utility is cardinal, that is, preferences are exogenously given and stable. Additional consumption provides smaller and smaller increases in utility, all individuals have interpersonally commensurable utility functions. With these assumptions, it is possible to construct a social welfare function simply by summing all the utility functions. Note that such a measure would still be concerned with the distribution of income, in normative terms, such authors were writing in the Benthamite tradition. The New Welfare Economics approach is based on the work of Pareto, Hicks and it explicitly recognizes the differences between the efficiency aspect of the discipline and the distribution aspect and treats them differently. Further, efficiency dispenses with cardinal measures of utility, replacing it with ordinal utility, situations are considered to have distributive efficiency when goods are distributed to the people who can gain the most utility from them. Many economists use Pareto efficiency as their efficiency goal, according to this measure of social welfare, a situation is optimal only if no individuals can be made better off without making someone else worse off. This ideal state of affairs can only come about if four criteria are met and this occurs when no consumer can be made better off without making others worse off. The marginal rate of transformation in production is identical for all products and this occurs when it is impossible to increase the production of any good without reducing the production of other goods. The marginal resource cost is equal to the marginal product for all production processes. This takes place when marginal physical product of a factor must be the same for all firms producing a good, the marginal rates of substitution in consumption are equal to the marginal rates of transformation in production, such as where production processes must match consumer wants
13.
Deadweight loss
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In economics, a deadweight loss is a loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable. Causes of deadweight loss can include monopoly pricing, externalities, taxes or subsidies, the term deadweight loss may also be referred to as the excess burden of monopoly or taxation. For example, consider a market for nails where the cost of each nail is 10 cents, in a perfectly competitive market, producers would have to charge a price of 10 cents and every customer whose marginal benefit exceeds 10 cents would have a nail. However, if there is one producer who has a monopoly on the product, for this market, the producer would charge 60 cents and thus exclude every customer who had less than 60 cents of marginal benefit. The deadweight loss is then the economic benefit foregone by these due to the monopoly pricing. Conversely, deadweight loss can also come from buying a product even if it costs more than it benefits them. To describe this, lets use the same market, but instead it will be perfectly competitive. This 3 cent subsidy will push the price of each nail down to 7 cents. Some consumers then buy nails even though the benefit to them is less than the real cost of 10 cents and this unneeded expense then creates the deadweight loss, resources are not being used efficiently. If the price of a glass of wine is $3.00 and the price of a glass of beer is $3.00, if the government decides to levy a wine tax of $3.00 per glass, the consumer might prefer to drink beer. The excess burden of taxation is the loss of utility to the consumer for drinking beer instead of wine, harbergers triangle, generally attributed to Arnold Harberger, refers to the deadweight loss associated with government intervention in a perfect market. This can happen through price floors, caps, taxes, tariffs and it also refers to the dead weight loss created by a governments failure to intervene in a market with externalities. The area represented by the triangle comes from the intersection of the supply and demand curves being cut short so that consumer surplus, the loss of such surplus, not recouped by e. g. tax revenues, is the dead weight loss. An important distinction should be made between Hicksian and Marshallian deadweight loss, the latter is related to the concept of consumer surplus, such that it can be shown that the Marshallian deadweight loss is zero where demand is perfectly elastic or supply is perfectly inelastic. The deadweight loss can then be interpreted as the difference between the equivalent variation and the revenue raised by the tax and this difference is attributable to the behavioural changes induced by a distortionary tax that are measured by a substitution effect. However, this is not the interpretation and Lind & Granqvist point out that Pigou did not use a lump sum tax as the point of reference when discussing deadweight loss. A comparable measure of loss is the variation, which depends on Hicksian demand instead of Marshallian demand. The deadweight loss can then be interpreted as the lump sum
14.
Duopoly
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A duopoly is a form of oligopoly where only two sellers exist in one market. In practice, the term is used where two firms have dominant control over a market. It is the most commonly studied form of due to its simplicity. The Bertrand model, in which, in a game of two firms, each one of them assume that the other will not change prices in response to its price cuts. When both firms use this logic, they reach a Nash equilibrium. Existence of only two sellers 2, presence of monopoly elements, so long products are differentiated, the firms enjoy some monopoly power, as each product will have some loyal customers 4. There are two modes of duopoly, i. e. Cournot’s Model and Chamberlain’s Model. Third Parties have encountered various blocks in getting onto ballots at different levels of government as well as other electoral obstacles, a commonly cited example of a duopoly is that involving Visa and MasterCard, who between them control a large proportion of the electronic payment processing market. In 2000 they were the defendants in a U. S. Department of Justice antitrust lawsuit, an appeal was upheld in 2004. Examples where two companies control a large proportion of a market are, Airbus and Boeing in the market for commercial airplanes. See also, Competition between Airbus and Boeing, televisa and Azteca in the Mexican Television market. RAI and Mediaset in the Italian Television market, radio Televisyen Malaysia and Media Prima in the Malaysian Television market. Air Canada and WestJet in the Canadian Aviation market, woolworths and Coles in the Australian supermarket market. Mitre 10 MEGA and Bunnings Warehouse in the Australian and New Zealand retail/trade timber, intel and AMD in X86 CPU market and Nvidia and AMD in consumer and professional PC GPU market. The BNSF Railway and Union Pacific Railroad have a duopoly on freight traffic in the Western United States. Norfolk Southern Railway and CSX Transportation operate a duopoly on freight traffic in the Eastern United States. Apple and Microsoft in the electronics industry, apples iOS and Googles Android in the mobile operating system market. Globe Telecom and Smart Communications in the Philippine Telecomunnications industry, first American Financial Corporation and Fidelity National Financial in the American title insurance sector
15.
Stackelberg competition
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The Stackelberg leadership model is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially. It is named after the German economist Heinrich Freiherr von Stackelberg who published Market Structure, in game theory terms, the players of this game are a leader and a follower and they compete on quantity. The Stackelberg leader is sometimes referred to as the Market Leader, there are some further constraints upon the sustaining of a Stackelberg equilibrium. The leader must know ex ante that the follower observes its action, the follower must have no means of committing to a future non-Stackelberg follower action and the leader must know this. Indeed, if the follower could commit to a Stackelberg leader action and the leader knew this, firms may engage in Stackelberg competition if one has some sort of advantage enabling it to move first. More generally, the leader must have commitment power, moving observably first is the most obvious means of commitment, once the leader has made its move, it cannot undo it - it is committed to that action. Moving first may be if the leader was the incumbent monopoly of the industry. Holding excess capacity is another means of commitment, in very general terms, let the price function for the industry be P, price is simply a function of total output, so is P where the subscript 1 represents the leader and 2 represents the follower. Suppose firm i has the cost structure C i, the model is solved by backward induction. The leader considers what the best response of the follower is, the leader then picks a quantity that maximises its payoff, anticipating the predicted response of the follower. The follower actually observes this and in equilibrium picks the expected quantity as a response, to calculate the SPNE, the best response functions of the follower must first be calculated. The profit of firm 2 is revenue minus cost, revenue is the product of price and quantity and cost is given by the firms cost structure, so profit is, Π2 = P ⋅ q 2 − C2. The best response is to find the value of q 2 that maximises Π2 given q 1, i. e. given the output of the leader, hence, the maximum of Π2 with respect to q 2 is to be found. First differentiate Π2 with respect to q 2, ∂ Π2 ∂ q 2 = ∂ P ∂ q 2 ⋅ q 2 + P − ∂ C2 ∂ q 2. Setting this to zero for maximisation, ∂ Π2 ∂ q 2 = ∂ P ∂ q 2 ⋅ q 2 + P − ∂ C2 ∂ q 2 =0, the values of q 2 that satisfy this equation are the best responses. Now the best response function of the leader is considered and this function is calculated by considering the followers output as a function of the leaders output, as just computed. The profit of firm 1 is Π1 = P. q 1 − C1, where q 2 is the followers quantity as a function of the leaders quantity, namely the function calculated above. The best response is to find the value of q 1 that maximises Π1 given q 2, i. e. given the best response function of the follower, hence, the maximum of Π1 with respect to q 1 is to be found
16.
Antoine Augustin Cournot
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Antoine Augustin Cournot was a French philosopher and mathematician who also contributed to the development of economics theory. Antoine Augustin Cournot was born at Gray, Haute-Saône, in 1821 he entered one of the most prestigious Grande École, the École Normale Supérieure, and, according to Sandmo, in 1823 he took a license degree in mathematics at Sorbonne University. He then became the secretary of a field marshal who required assistance in writing his memoirs. In addition, he published a number of articles and even acquired a degree in law, subsequently, Cournot held positions as professor of mathematics, chief examiner for undergraduate students, and rector of Dijon Academy. Cournot was mainly a mathematician, but did have influence over economics. His theories on monopolies and duopolies are still famous, in 1838 the book Researches on the Mathematical Principles of the Theory of Wealth was published, in which he used the application of the formulas and symbols of mathematics in economic analysis. This book was criticized and not very successful during Cournots lifetime, and he did try to rewrite it twice. Today many economists believe this book to be the point of departure for modern economic analysis, Cournot introduced the ideas of functions and probability into economic analysis. The Cournot duopoly model developed in his book also introduced the concept of a Nash equilibrium, Cournot believed that economists must utilize the tools of mathematics only to establish probable limits and to express less stable facts in more absolute terms. He further held that the uses of mathematics in economics do not necessarily involve strict numerical precision. Today, Cournots work is recognized in econometrics and he was also a teacher of political economy and mathematics to Auguste Walras, who was the father of Léon Walras. Cournot and Auguste Walras persuaded Léon Walras to try political economics, Cournot is also credited to be one of the sources of inspiration for Léon Walras and his equilibrium theory. By the time Cournot died in 1877, he was nearly blind, in the field of economics he is best known for his work in the field of oligopoly theory—Cournot competition which is named after him. Touffut, Jean-Philippe, ed. Augustin Cournot, Modelling Economics, for an early 20th century evaluation see, Chisholm, Hugh, ed. Cournot, Antoine Augustin. Antoine Augustin Cournot in New School Profiles OConnor, John J. Robertson, Edmund F. Antoine Augustin Cournot, MacTutor History of Mathematics archive, University of St Andrews
17.
Cournot competition
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It is named after Antoine Augustin Cournot who was inspired by observing competition in a spring water duopoly. All firms know N, the number of firms in the market. Each firm has a cost function c i, normally the cost functions are treated as common knowledge. The cost functions may be the same or different among firms, the market price is set at a level such that demand equals the total quantity produced by all firms. Each firm takes the quantity set by its competitors as a given, evaluates its residual demand, the model was one of a number that Cournot set out explicitly and with mathematical precision in the volume. He then showed that a stable equilibrium occurs where these functions intersect, the consequence of this is that in equilibrium, each firms expectations of how other firms will act are shown to be correct, when all is revealed, no firm wants to change its output decision. This idea of stability was later taken up and built upon as a description of Nash equilibria and this section presents an analysis of the model with 2 firms and constant marginal cost. What is firm 1s optimal quantity, if firm 1 decides not to produce anything, then price is given by P = P. If firm 1 produces q 1 ′ then price is given by P, more generally, for each quantity that firm 1 might decide to set, price is given by the curve d 1. The curve d 1 is called firm 1’s residual demand, it all possible combinations of firm 1’s quantity. Determine firm 1’s optimum output, To do this we must find where marginal revenue equals marginal cost, marginal cost is assumed to be constant. Marginal revenue is a curve - r 1 - with twice the slope of d 1, the point at which the two curves intersect corresponds to quantity q 1 ″. Firm 1’s optimum q 1 ″, depends on what it believes firm 2 is doing, to find an equilibrium, we derive firm 1’s optimum for other possible values of q 2. Diagram 2 considers two possible values of q 2, if q 2 =0, then the first firms residual demand is effectively the market demand, d 1 = D. The optimal solution is for firm 1 to choose the monopoly quantity, q 1 ″ = q m. If firm 2 were to choose the quantity corresponding to perfect competition, q 2 = q c such that P = c, then firm 1’s optimum would be to produce nil and this is the point at which marginal cost intercepts the marginal revenue corresponding to d 1. It can be shown that, given the demand and constant marginal cost. Because we have two points, we can draw the entire function q 1 ″, see diagram 3
18.
Joseph Bertrand
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Joseph Louis François Bertrand was a French mathematician who worked in the fields of number theory, differential geometry, probability theory, economics and thermodynamics. Bertrand was a professor at the École Polytechnique and Collège de France and he was a member of the Paris Academy of Sciences and was its permanent secretary for twenty-six years. He was the son of physician Alexandre Jacques François Bertrand and the brother of archaeologist Alexandre Bertrand, at eleven years old he attended the course of the École Polytechnique as an auditor. He conjectured, in 1845, that there is at least one prime between n and 2n −2 for every n >3, chebyshev proved this conjecture, now called Bertrands postulate, in 1850. He was also famous for a paradox in the field of probability, there is another paradox in game theory that is named after him, called the Bertrand Paradox. Bertrand translated into French Carl Friedrich Gausss work on the theory of errors, in the field of economics he reviewed the work on oligopoly theory, specifically the Cournot Competition Model of French mathematician Antoine Augustin Cournot. His book Thermodynamique points out in Chapter XII, that thermodynamic entropy and he was one of the first people to point this out. In 1858 he was elected a member of the Royal Swedish Academy of Sciences. J
19.
Bertrand competition
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Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand. It describes interactions among firms that set prices and their customers that choose quantities at the prices set, Cournot argued that when firms choose quantities, the equilibrium outcome involves firms pricing above marginal cost and hence the competitive price. In his review, Bertrand argued that if firms chose prices rather than quantities, the model was not formalized by Bertrand, however, the idea was developed into a mathematical model by Francis Ysidro Edgeworth in 1889. The model rests on very specific assumptions, there are at least two firms producing a homogeneous product and can not cooperate in any way. Firms compete by setting prices simultaneously and consumers want to buy everything from a firm with a lower price, if two firms charge the same price, consumers demand is split evenly between them. It is simplest to concentrate on the case of duopoly where there are just two firms, although the results hold for any number of greater than 1. A crucial assumption about the technology is that firms have the same constant unit cost of production, so that marginal and average costs are the same. This means that as long as the price it sets is above unit cost, if price is equal to unit cost, then it is indifferent to how much it sells, since it earns no profit. Obviously, the firm will never want to set a price below unit cost, why is the competitive price a Nash equilibrium in the Bertrand model. First, if both firms set the price with price equal to marginal cost, neither firm will earn any profits. No other price is an equilibrium, so there can be no equilibrium with both firms setting the same price above marginal cost. Also, there can be no equilibrium with firms setting different prices, the firms setting the higher price will earn nothing. Hence the higher priced firm will want to lower its price to undercut the lower-priced firm, hence the only equilibrium in the Bertrand model occurs when both firms set price equal to unit cost. Note that the Bertrand equilibrium is a weak Nash-equilibrium, p1 = firm 1’s price level p2 = firm 2’s price level pM = monopoly price level Firm 1s optimum price depends on where it believes firm 2 will set its prices. Pricing just below the other firm will obtain full market demand, in general terms, firm 1s best response function is p1’’, this gives firm 1 optimal price for each price set by firm 2. Diagram 1 shows firm 1’s reaction function p1’’, with each firms strategy on each axis and it shows that when P2 is less than marginal cost firm 1 prices at marginal cost, p1=MC. When firm 2 prices above MC but below monopoly prices, then firm 1 prices just below firm 2, when firm 2 prices above monopoly prices firm 1 prices at monopoly level, p1=pM. Because firm 2 has the same marginal cost as firm 1, diagram 2 shows both reaction functions
20.
Profit maximization
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In economics, profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem, any costs incurred by a firm may be classed into two groups, fixed costs and variable costs. Fixed costs, which only in the short run, are incurred by the business at any level of output. These may include equipment maintenance, rent, wages of employees whose numbers cannot be increased or decreased in the short run, variable costs change with the level of output, increasing as more product is generated. Materials consumed during production often have the largest impact on this category, fixed cost and variable cost, combined, equal total cost. Revenue is the amount of money that a company receives from its business activities, usually from the sale of goods. For instance, taking the first definition, if it costs a firm 400 USD to produce 5 units and 480 USD to produce 6, to obtain the profit maximizing output quantity, we start by recognizing that profit is equal to total revenue minus total cost. Given a table of costs and revenues at each quantity, we can compute equations or plot the data directly on a graph. The profit-maximizing output is the one at which this difference reaches its maximum, in the accompanying diagram, the linear total revenue curve represents the case in which the firm is a perfect competitor in the goods market, and thus cannot set its own selling price. The profit-maximizing output level is represented as the one at which revenue is the height of C and total cost is the height of B. This output level is also the one at which the total profit curve is at its maximum, an equivalent perspective relies on the relationship that, for each unit sold, marginal profit equals marginal revenue minus marginal cost. At the output level at which marginal revenue equals marginal cost, marginal profit is zero, average total costs are represented by curve ATC. Total economic profit is represented by the area of the rectangle PABC, the optimum quantity is the same as the optimum quantity in the first diagram. If the firm is operating in a market, changes would have to be made to the diagrams. For example, the marginal revenue curve would have a negative gradient, in a competitive environment, more complicated profit maximization solutions involve the use of game theory. In some cases a firms demand and cost conditions are such that marginal profits are greater than zero for all levels of production up to a certain maximum. In other words, the profit maximizing quantity and price can be determined by setting marginal revenue equal to zero, marginal revenue equals zero when the total revenue curve has reached its maximum value. An example would be an airline flight
21.
Chess
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Chess is a two-player strategy board game played on a chessboard, a checkered gameboard with 64 squares arranged in an eight-by-eight grid. Chess is played by millions of people worldwide, both amateurs and professionals, each player begins the game with 16 pieces, one king, one queen, two rooks, two knights, two bishops, and eight pawns. Each of the six piece types moves differently, with the most powerful being the queen, the objective is to checkmate the opponents king by placing it under an inescapable threat of capture. To this end, a players pieces are used to attack and capture the opponents pieces, in addition to checkmate, the game can be won by voluntary resignation by the opponent, which typically occurs when too much material is lost, or if checkmate appears unavoidable. A game may result in a draw in several ways. Chess is believed to have originated in India, some time before the 7th century, chaturanga is also the likely ancestor of the Eastern strategy games xiangqi, janggi and shogi. The pieces took on their current powers in Spain in the late 15th century, the first generally recognized World Chess Champion, Wilhelm Steinitz, claimed his title in 1886. Since 1948, the World Championship has been controlled by FIDE, the international governing body. There is also a Correspondence Chess World Championship and a World Computer Chess Championship, online chess has opened amateur and professional competition to a wide and varied group of players. There are also many variants, with different rules, different pieces. FIDE awards titles to skilled players, the highest of which is grandmaster, many national chess organizations also have a title system. However, these are not recognised by FIDE, the term master may refer to a formal title or may be used more loosely for any skilled player. Until recently, chess was a sport of the International Olympic Committee. Chess was included in the 2006 and 2010 Asian Games, since the 1990s, computer analysis has contributed significantly to chess theory, particularly in the endgame. The computer IBM Deep Blue was the first machine to overcome a reigning World Chess Champion in a match when it defeated Garry Kasparov in 1997, the rise of strong computer programs that can be run on hand-held devices has led to increasing concerns about cheating during tournaments. The official rules of chess are maintained by FIDE, chesss international governing body, along with information on official chess tournaments, the rules are described in the FIDE Handbook, Laws of Chess section. Chess is played on a board of eight rows and eight columns. The colors of the 64 squares alternate and are referred to as light, the chessboard is placed with a light square at the right-hand end of the rank nearest to each player
22.
Monopolistic competition
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Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another and hence are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given, in the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity, models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, the founding father of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition. Joan Robinson published a book The Economics of Imperfect Competition with a theme of distinguishing perfect from imperfect competition. Monopolistically competitive markets have the characteristics, There are many producers and many consumers in the market. Consumers perceive that there are differences among the competitors products. There are few barriers to entry and exit, producers have a degree of control over price. The long-run characteristics of a competitive market are almost the same as a perfectly competitive market. A firm making profits in the run will nonetheless only break even in the long run because demand will decrease. This means in the run, a monopolistically competitive firm will make zero economic profit. This illustrates the amount of influence the firm has over the market, because of brand loyalty and this means that an individual firms demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule. However, the differences are not so great as to other goods as substitutes. Technically, the price elasticity of demand between goods in such a market is positive. In fact, the XED would be high, MC goods are best described as close but imperfect substitutes. The goods perform the basic functions but have differences in qualities such as type, style, quality, reputation, appearance. For example, the function of motor vehicles is the same—to move people and objects from point to point in reasonable comfort. Yet there are different types of motor vehicles such as motor scooters, motor cycles, trucks and cars
23.
Bertrand model
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Bertrand competition is a model of competition used in economics, named after Joseph Louis François Bertrand. It describes interactions among firms that set prices and their customers that choose quantities at the prices set, Cournot argued that when firms choose quantities, the equilibrium outcome involves firms pricing above marginal cost and hence the competitive price. In his review, Bertrand argued that if firms chose prices rather than quantities, the model was not formalized by Bertrand, however, the idea was developed into a mathematical model by Francis Ysidro Edgeworth in 1889. The model rests on very specific assumptions, there are at least two firms producing a homogeneous product and can not cooperate in any way. Firms compete by setting prices simultaneously and consumers want to buy everything from a firm with a lower price, if two firms charge the same price, consumers demand is split evenly between them. It is simplest to concentrate on the case of duopoly where there are just two firms, although the results hold for any number of greater than 1. A crucial assumption about the technology is that firms have the same constant unit cost of production, so that marginal and average costs are the same. This means that as long as the price it sets is above unit cost, if price is equal to unit cost, then it is indifferent to how much it sells, since it earns no profit. Obviously, the firm will never want to set a price below unit cost, why is the competitive price a Nash equilibrium in the Bertrand model. First, if both firms set the price with price equal to marginal cost, neither firm will earn any profits. No other price is an equilibrium, so there can be no equilibrium with both firms setting the same price above marginal cost. Also, there can be no equilibrium with firms setting different prices, the firms setting the higher price will earn nothing. Hence the higher priced firm will want to lower its price to undercut the lower-priced firm, hence the only equilibrium in the Bertrand model occurs when both firms set price equal to unit cost. Note that the Bertrand equilibrium is a weak Nash-equilibrium, p1 = firm 1’s price level p2 = firm 2’s price level pM = monopoly price level Firm 1s optimum price depends on where it believes firm 2 will set its prices. Pricing just below the other firm will obtain full market demand, in general terms, firm 1s best response function is p1’’, this gives firm 1 optimal price for each price set by firm 2. Diagram 1 shows firm 1’s reaction function p1’’, with each firms strategy on each axis and it shows that when P2 is less than marginal cost firm 1 prices at marginal cost, p1=MC. When firm 2 prices above MC but below monopoly prices, then firm 1 prices just below firm 2, when firm 2 prices above monopoly prices firm 1 prices at monopoly level, p1=pM. Because firm 2 has the same marginal cost as firm 1, diagram 2 shows both reaction functions
24.
Kinked demand
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The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an attempt to explain sticky prices. Kinked demand curves and traditional demand curves are similar in that they are both downward-sloping and they are distinguished by a hypothesized concave bend with a discontinuity at the bend - the kink. Therefore, the first derivative at that point is undefined and leads to a discontinuity in the marginal revenue curve. Classical economic theory assumes that a producer with some market power will set marginal costs equal to marginal revenue. This idea can be envisioned graphically by the intersection of a marginal cost curve. In classical theory, any change in the marginal cost structure or the marginal revenue structure will be reflected in a new price and/or quantity sold of the item. This result does not occur if a kink exists, because of this jump discontinuity in the marginal revenue curve, marginal costs could change without necessarily changing the price or quantity. The two seminal papers on kinked demand were written simultaneously in 1939 on both sides of the Atlantic. Paul Sweezy of Harvard College published Demand Under Conditions of Oligopoly, Sweezy argued that an ordinary demand curve does not apply to oligopoly markets and promotes a kinked demand curve. Hall and Hitch further present a hypothesis for the setting of prices. They base this on a notion of full cost - marginal cost of each unit plus a percent of costs or fixed costs with an additional percent added for profit. Others such as George Stigler have argued against kinked demand and his primary opposition is summarized in a Working Paper out of the Stanford University Economics Department by seminal authors Elmore, Kautz, Walls et al. New classical economists, led by Chicago’s George Stigler, worked to discredit the kinked demand models, Stigler first argues that the kinked demand models are not useful, as Hall and Hitch’s model only explains observed phenomenon and is not predictive. Game theory and models of interaction have largely replaced kinked demand to explain price dislocations. The Kinked Demand Curve, A Game-Theoretic Approach International Journal of Industrial Organization Vol.6, Hall, R. and Hitch, C.1939. Price Theory and Business Behaviour Oxford Economic Papers Vol.2, maskin, E. and Tirole, J.1988. A Theory of Dynamic Oligopoly, II, Price Competition, Kinked Demand Curves, a Duopoly Price Game Economica Vol.41, pp. 157-175
25.
John Forbes Nash Jr.
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John Forbes Nash Jr. was an American mathematician who made fundamental contributions to game theory, differential geometry, and the study of partial differential equations. Nashs work has provided insight into the factors that govern chance and his theories are widely used in economics. In 2015, he shared the Abel Prize with Louis Nirenberg for his work on nonlinear partial differential equations. In 1959, Nash began showing signs of mental illness. After 1970, his condition improved, allowing him to return to academic work by the mid-1980s. His struggles with his illness and his became the basis for Sylvia Nasars biography, A Beautiful Mind. On May 23,2015, Nash and his wife, Alicia Nash, were killed in a car crash while riding in a taxi on the New Jersey Turnpike, Nash was born on June 13,1928, in Bluefield, West Virginia. His father, John Forbes Nash, was an engineer for the Appalachian Electric Power Company. His mother, Margaret Virginia Nash, had been a schoolteacher before she married and he was baptized in the Episcopal Church. He had a sister, Martha. Nash attended kindergarten and public school, and he learned from books provided by his parents and grandparents, Nashs parents pursued opportunities to supplement their sons education, and arranged for him to take advanced mathematics courses at a local community college during his final year of high school. He attended Carnegie Institute of Technology through a benefit of the George Westinghouse Scholarship. He switched to a major and eventually, at the advice of his teacher John Lighton Synge. After graduating in 1948 with both a B. S. and M. S. in mathematics, Nash accepted a scholarship to Princeton University, where he pursued further graduate studies in mathematics. Nashs adviser and former Carnegie professor Richard Duffin wrote a letter of recommendation for Nashs entrance to Princeton stating, Nash was accepted at Harvard University. However, the chairman of the department at Princeton, Solomon Lefschetz, offered him the John S. Kennedy fellowship. Further, he considered Princeton more favorably because of its proximity to his family in Bluefield, at Princeton, he began work on his equilibrium theory, later known as the Nash equilibrium. Nash earned a Ph. D. degree in 1950 with a 28-page dissertation on non-cooperative games, the thesis, which was written under the supervision of doctoral advisor Albert W. Tucker, contained the definition and properties of the Nash equilibrium
26.
Barriers to entry
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Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy. Barriers to entry often cause or aid the existence of monopolies or give companies market power, various conflicting definitions of barrier to entry have been put forth since the 1950s, and there has been no clear consensus on which definition should be used. This has caused confusion and likely flawed policy. In 1968, George Stigler defined an entry barrier as A cost of producing that must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry. McAfee et al. criticized the phrase is not borne as being confusing, in 1979, Franklin M. Fisher gave the definition anything that prevents entry when entry is socially beneficial. McAfee et al. criticized this along the lines as Bains definition. In 1994, Dennis Carlton and Jeffrey Perloff gave the definition, a primary barrier to entry is a cost that constitutes an economic barrier to entry on its own. An ancillary barrier to entry is a cost that does not constitute a barrier to entry by itself, an antitrust barrier to entry is a cost that delays entry and thereby reduces social welfare relative to immediate but equally costly entry. This contrasts with the concept of economic barrier to entry defined above, as it can delay entry into a market, all economic barriers to entry are antitrust barriers to entry, but the converse is not true. The following examples fit all the definitions of primary economic barriers to entry. Distributor agreements - Exclusive agreements with key distributors or retailers can make it difficult for manufacturers to enter the industry. Intellectual property - Potential entrant requires access to equally efficient production technology as the combatant monopolist in order to enter a market. Patents give a firm the right to stop other firms producing a product for a given period of time. Patents are intended to encourage invention and technological progress by guaranteeing proceeds as an incentive, similarly, trademarks and servicemarks may represent a kind of entry barrier for a particular product or service if the market is dominated by one or a few well-known names. Restrictive practices, such as air transport agreements that make it difficult for new airlines to obtain landing slots at some airports, supplier agreements - Exclusive agreements with key links in the supply chain can make it difficult for other manufacturers to enter an industry. Switching barriers - At times, it may be difficult or expensive for customers to switch providers Tariffs - Taxes on imports prevent foreign firms from entering into domestic markets. Taxes – Smaller companies typical fund expansions out of retained profits so high tax rates hinder their growth, larger firms may be better able to avoid high taxes through either loopholes written into law favoring large companies or by using their larger tax accounting staffs to better avoid high taxes. Zoning - Government allows certain economic activity in specified land areas but excludes others, the following examples are sometimes cited as barriers to entry, but dont fit all the commonly cited definitions of a barrier to entry
27.
Globalization
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Globalization or globalisation is the action or procedure of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Advances in transportation and in telecommunications infrastructure have been factors in globalization, generating further interdependence of economic. Large-scale globalization began in the 1820s, in the late 19th century and early 20th century, the connectivity of the worlds economies and cultures grew very quickly. The term globalization is recent, only establishing its current meaning in the 1970s, further, environmental challenges such as global warming, cross-boundary water and air pollution, and overfishing of the ocean are linked with globalization. Globalizing processes affect and are affected by business and work organization, economics, socio-cultural resources, academic literature commonly subdivides globalization into three major areas, economic globalization, cultural globalization, and political globalization. The term globalization is derived from the word globalize, which refers to the emergence of a network of economic systems. One of the earliest known usages of the term as a noun was in a 1930 publication entitled Towards New Education, a related term, corporate giants, was coined by Charles Taze Russell in 1897 to refer to the largely national trusts and other large enterprises of the time. By the 1960s, both began to be used as synonyms by economists and other social scientists. Economist Theodore Levitt is widely credited with coining the term in an article entitled Globalization of Markets, However, the term globalization was in use well before this and had been used by other scholars as early as 1981. Levitt can be credited with popularizing the term and bringing it into the mainstream audience in the later half of the 1980s. Due to the complexity of the concept, research projects, articles, sociologists Martin Albrow and Elizabeth King define globalization as all those processes by which the people of the world are incorporated into a single world society. Globalization can be located on a continuum with the local, national and regional, without reference to such expansive spatial connections, there can be no clear or coherent formulation of this term. A satisfactory definition of globalization must capture each of these elements, extensity, intensity, velocity and it pertains to the increasing ease with which somebody on one side of the world can interact, to mutual benefit, with somebody on the other side of the world. The ideological dimension, according to Steger, is filled with a range of norms, claims, beliefs and they have also argued that four different forms of globalization can be distinguished that complement and cut across the solely empirical dimensions. According to James, the oldest dominant form of globalization is embodied globalization, a second form is agency-extended globalization, the circulation of agents of different institutions, organizations, and polities, including imperial agents. Object-extended globalization, a form, is the movement of commodities. He calls the transmission of ideas, images, knowledge, and information across world-space disembodied globalization and he asserted that the pace of globalization was quickening and that its impact on business organization and practice would continue to grow. Economist Takis Fotopoulos defined economic globalization as the opening and deregulation of commodity, capital and he used political globalization to refer to the emergence of a transnational elite and a phasing out of the nation-state
28.
Embraer
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Embraer S. A. is a Brazilian aerospace conglomerate that produces commercial, military, executive and agricultural aircraft and provides aeronautical services. It is headquartered in São José dos Campos, São Paulo State, seeking to develop a domestic aircraft industry, the Brazilian government made several investments in this area during the 1940s and 50s. However, it was not until 1969 that Empresa Brasileira de Aeronáutica was created as a government-owned corporation and its first president, Ozires Silva, was a government appointee, and the company initially produced a turboprop passenger aircraft, the Embraer EMB110 Bandeirante. The Brazilian Government contributed to Embraers early growth by providing production contracts, the company sold solely to the domestic market until 1975. Aimed at the market, this plane was the first of Embraers highly successful small airliners. In 1974, the company started to produce Piper Aircraft light planes under license, Piper first put together knock-down kits in their US factory for Embraer to assemble and market in Brazil and Latin America. By 1978, most of the parts and components were being sourced locally, between 1974 and 2000, nearly 2,500 license-built Pipers were produced by Embraer. Born from a Brazilian government plan and having been state-run from the beginning and this was a period of privatization for many state-controlled companies in Brazil. Embraer was sold on December 7,1994, which helped it avoid a looming bankruptcy, the company continued to win government contracts. The Brazilian government retains interest through possession of golden shares, which allow it veto power, in 2000, Embraer made simultaneous initial public offerings on the NYSE and BM&F Bovespa stock exchanges. In the mid-1990s, the company pursued a line more focused on small commercial planes over the military aircraft that had previously made up the majority of its manufacturing. It soon expanded to the production of larger airliners, with 70–110 seats. Today, the company manufactures for both defense and commerce, at the 2000 Farnborough Airshow, Embraer launched the Legacy 600, a business jet variant of the ERJ. In 2002, a business unit was organised as Embraer Executive Jets as the Legacy was introduced. In 2005, the Phenom 100 was then conceptualised as an air taxi like the Eclipse 500, competing with Cessna and it was introduced in 2008 and is the basis of the larger Phenom 300. The midsize Legacy 450 and Legacy 500 were jointly developed as clean sheet designs, in 2016, Embraer delivered its 1, 000th executive jet and have a market share of 17% by volume, acknowledging it lacks an ultra-long-range large cabin jet. On April 19,2007, Embraer announced it was considering the production of a military transport. Work began in May 2009 with funding from the Brazilian Air Force, correios, the Brazilian postal service, has shown interest in buying this aircraft
29.
Bombardier Aerospace
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Bombardier Aerospace is a division of Bombardier Inc. It is headquartered in Dorval, Quebec, Canada, after acquiring Canadair in 1986 and restoring it to profitability, in 1989 Bombardier acquired the near-bankrupt Short Brothers aircraft manufacturing company in Belfast, Northern Ireland. The aerospace company now accounts for half of Bombardier Inc. s revenue. It also manufactured the Bombardier 415 amphibious water-bomber, and the Global Express, the CSeries, which Bombardier offers in several size versions, is competing with the Airbus A318 and Airbus A319, the Boeing 737 Next Generation 737-600 and 737-700 models, and the Embraer 195. The launch customer for the CSeries, Lufthansa, signed a letter of intent for up to 60 aircraft and 30 options in 2008, the manufacturing complex in Montreal was redeveloped by Ghafari Associates to incorporate lean manufacturing of its CSeries aircraft. In January 2012, the company began manufacturing simple structures such as controls for the CRJ series from a transitional facility near Casablanca, Morocco. On 30 September 2013 it broke ground on its permanent facility, the consortium would include Korea Aerospace Industries and Korean Air Lines. In November 2012, the signed the largest deal in its history, with Swiss business jet operator VistaJet. The deal included an option for Bombardier to manufacture and sell an additional 86 Global jets, in April 2013, Canadas Porter Airlines placed a conditional order for 12 CSeries aircraft, with options for another 18. However, this was conditional on the Billy Bishop Toronto City Airport allowing jets to use the facilities, studies underway included an environmental assessment, master planning exercise and preliminary runway design. In 2015, the Government of Canada announced that it would not approve a change to allow jets at the airport, in January 2014, Bombardier Inc. cut 1,700 employees from Bombardier Aerospace to save costs due to a 19 percent drop in orders in 2013. In July the same year, Bombardier reorganized its structure in response to its underperformance. President Guy Hachey retired and Bombardier Aerospace was split into three divisions, business aircraft, commercial aircraft and aerostructures, and engineering services, as part of the corporate overhaul,1,800 jobs were cut. On 29 October 2015 Bombardier announced a US$4. 9-billion third-quarter loss, Bombardier also said it would cancel its Learjet 85 program, taking another US$1. 2-billion writedown and cancelling the 64 outstanding orders. Particularly because of the CSeries, the debt had reached approximately $9 Billion. Bombardier shares fell 17.4 per cent on that day, on 17 February 2016, Bombardier announced its 2015 profits were $138 million before taking a $5.4 billion write-down. That same week, the company announced it would cut 7,000 jobs. At the time, the company had only 243 firm orders and letters of intent and commitment for another 360, most of these were for the CS300 model
30.
Boeing
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The Boeing Company is an American multinational corporation that designs, manufactures, and sells airplanes, rotorcraft, rockets, and satellites worldwide. The company also provides leasing and product support services, Boeing stock is a component of the Dow Jones Industrial Average. The Boeing Companys corporate headquarters are located in Chicago and the company is led by President, Boeing is organized into five primary divisions, Boeing Commercial Airplanes, Boeing Defense, Space & Security, Engineering, Operations & Technology, Boeing Capital, and Boeing Shared Services Group. Boeing bought Heaths shipyard in Seattle on the Duwamish River, which became his first airplane factory. Boeing was incorporated in Seattle by William Boeing, on July 15,1916, Boeing was later incorporated in Delaware, the original Certificate of Incorporation was filed with the Secretary of State of Delaware on July 19,1934. Boeing, who studied at Yale University, worked initially in the timber industry and this knowledge proved invaluable in his subsequent design and assembly of airplanes. The company stayed in Seattle to take advantage of the supply of spruce wood. William Boeing founded his company a few months after the June 15 maiden flight of one of the two B&W seaplanes built with the assistance of George Conrad Westervelt, a U. S. Navy engineer. Boeing and Westervelt decided to build the B&W seaplane after having flown in a Curtiss aircraft, Boeing bought a Glenn Martin Flying Birdcage seaplane and was taught to fly by Glenn Martin himself. Boeing soon crashed the Birdcage and when Martin informed Boeing that replacement parts would not become available for months, Westervelt agreed to build a better airplane and soon produced the B&W Seaplane. This first Boeing airplane was assembled in a hangar located on the northeast shore of Seattles Lake Union. Many of Boeings early planes were seaplanes, on April 6,1917, the U. S. declared War on Germany and later in the year entered World War I. On May 9,1917, the became the Boeing Airplane Company. With the U. S. entering the war, Boeing knew that the U. S. Navy needed seaplanes for training, so Boeing shipped two new Model Cs to Pensacola, Florida, where the planes were flown for the Navy. The Navy liked the Model C and ordered 50 more, the company moved its operations to a larger former shipbuilding facility known as Boeing Plant 1, located on the lower Duwamish River, Washington state. Others, including Boeing, started selling other products, Boeing built dressers, counters, and furniture, along with flat-bottom boats called Sea Sleds. In 1919 the Boeing B-1, flying boat made its first flight and it accommodated one pilot and two passengers and some mail. Over the course of eight years, it made international airmail flights from Seattle to Victoria, on May 24,1920, the Boeing Model 8 made its first flight
31.
Airbus
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Airbus SAS is a division of the multinational Airbus Group SE that manufactures civil aircraft. It is based in Blagnac, France, a suburb of Toulouse, with production and manufacturing facilities mainly in France, Germany, Spain, China, United Kingdom, Airbus began as a consortium of aerospace manufacturers, Airbus Industrie. After a protracted sales process BAE sold its shareholding to EADS on 13 October 2006, Airbus has sixteen key sites in four countries, France, Germany, Spain and the United Kingdom. Final assembly production is based at Toulouse, France, Hamburg, Germany, Seville, Spain, Tianjin, China, Airbus has subsidiaries in the United States, Japan and India. The company produces and markets the first commercially viable digital fly-by-wire airliner, the Airbus A320, and the worlds largest passenger airliner, Airbus Industrie began as a consortium of European aviation firms formed to compete with American companies such as Boeing, McDonnell Douglas, and Lockheed. While many European aircraft were innovative, even the most successful had small production runs, in the mid-1960s, tentative negotiations commenced regarding a European collaborative approach. The same year Hawker Siddeley teamed with Breguet and Nord to study airbus designs, the Hawker Siddeley/Breguet/Nord groups HBN100 became the basis for the continuation of the project. By 1966 the partners were Sud Aviation, later Aérospatiale, Arbeitsgemeinschaft Airbus, later Deutsche Airbus, a request for funding was made to the three governments in October 1966. On 25 July 1967 the three agreed to proceed with the proposal. In the two years following this agreement, both the British and French governments expressed doubts about the project, the MoU had stated that 75 orders must be achieved by 31 July 1968. With concerns at proposal of the A300B proposal in December 1968, and fearing it would not recoup its investment due to lack of sales, West Germany took this opportunity to increase its share of the project to 50%. Given the participation by Hawker Siddeley up to point, France. Thus the British company was allowed to continue as a privileged subcontractor, Hawker Siddeley invested GB£35 million in tooling and, requiring more capital, received a GB£35 million loan from the West German government. Airbus Industrie was formally established as a Groupement dIntérêt Économique on 18 December 1970 and it had been formed by a government initiative between France, West Germany and the UK that originated in 1967. Its initial shareholders were the French company Aérospatiale and the West German company Deutsche Airbus, Aérospatiale and Deutsche Airbus each took a 36. 5% share of production work, Hawker Siddeley 20% and the Dutch company Fokker-VFW 7%. Each company would deliver its sections as fully equipped, ready-to-fly items, in October 1971 the Spanish company CASA acquired a 4. 2% share of Airbus Industrie, with Aérospatiale and Deutsche Airbus reducing their stakes to 47. 9%. In January 1979 British Aerospace, which had absorbed Hawker Siddeley in 1977, the majority shareholders reduced their shares to 37. 9%, while CASA retained its 4. 2%. The Airbus A300 was to be the first aircraft to be developed, manufactured and marketed by Airbus, by early 1967 the A300 label began to be applied to a proposed 320 seat, twin engined airliner
32.
General Electric
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General Electric, often abbreviated as GE, is an American multinational conglomerate corporation incorporated in New York and headquartered in Boston, Massachusetts. In 2011, GE ranked among the Fortune 500 as the 68th-largest firm in the U. S. by gross revenue, as of 2012, the company was listed the fourth-largest in the world among the Forbes Global 2000, further metrics being taken into account. The Nobel Prize has twice been awarded to employees of General Electric, Irving Langmuir in 1932, on January 13,2016, it was announced that GE will be moving its corporate headquarters from Fairfield, Connecticut to the South Boston Waterfront neighborhood of Boston, Massachusetts. The first group of workers arrived in the summer of 2016, morgan and the Vanderbilt family for Edisons lighting experiments. The new company also acquired Sprague Electric Railway & Motor Company in the same year, both plants continue to operate under the GE banner to this day. The company was incorporated in New York, with the Schenectady plant used as headquarters for years thereafter. Around the same time, General Electrics Canadian counterpart, Canadian General Electric, was formed, in 1896, General Electric was one of the original 12 companies listed on the newly formed Dow Jones Industrial Average. After 120 years, it is the one of the original companies still listed on the Dow index. In 1911, General Electric absorbed the National Electric Lamp Association into its lighting business, GE established its lighting division headquarters at Nela Park in East Cleveland, Ohio. Nela Park is still the headquarters for GEs lighting business, owen D. Young, through GE, founded the Radio Corporation of America in 1919 to further international radio. GE used RCA as its retail arm for radio sales from 1919, in 1927, Ernst Alexanderson of GE made the first demonstration of his television broadcasts at his General Electric Realty Plot home at 1132 Adams Rd, Schenectady, NY. The sound was broadcast on GEs WGY, experimental television station W2XAD evolved into station WRGB which—along with WGY and WGFM —was owned and operated by General Electric until 1983. GEs history of working with turbines in the field gave them the engineering know-how to move into the new field of aircraft turbosuperchargers. Led by Sanford Alexander Moss, GE introduced the first superchargers during World War I, superchargers became indispensable in the years immediately prior to World War II, and GE was the world leader in exhaust-driven supercharging when the war started. This experience, in turn, made GE a natural selection to develop the Whittle W.1 jet engine that was demonstrated in the United States in 1941, GE ranked ninth among United States corporations in the value of wartime production contracts. In 2002, GE acquired the assets of Enron during its bankruptcy proceedings. Some consumers boycotted GE light bulbs, refrigerators and other products in the 1980s and 1990s to protest GEs role in weapons production. With IBM, Burroughs, NCR, Control Data Corporation, Honeywell, RCA and UNIVAC, GE had a line of general purpose and special purpose computers
33.
Pratt & Whitney
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Pratt & Whitney is an American aerospace manufacturer with global service operations. It is a subsidiary of United Technologies, Pratt & Whitneys aircraft engines are widely used in both civil aviation and military aviation. Its headquarters are in East Hartford, Connecticut, as one of the big three aero-engine manufacturers, it competes with General Electric and Rolls-Royce, although it has also formed joint ventures with both of these companies. In addition to engines, Pratt & Whitney manufactures gas turbines for industrial and power generation. As of 2014, the company reported having 31,500 employees supporting more than 11,000 customers in 180 countries around the world, in 2013, Pratt & Whitneys revenue totaled $14.5 billion. In April 1925, Frederick Rentschler, an Ohio native and former executive at Wright Aeronautical, was determined to start a business of his own. Frederick Rentschler approached these men as he sought capital and assets for his new venture, deeds and G. Mead, and colleagues, all formerly of Wright Aeronautical. Conceived and designed by Mead, the new engine would be a large, air-cooled, Pratt & Whitney Machine Tool was going through a period of self-revision at the time to prepare itself for the post–Great War era, discontinuing old product lines and incubating new ones. P&WMTs future growth would depend on innovation and it lent Rentschler $250,000, the use of the Pratt & Whitney name, and space in their building. This was the beginning of the Pratt & Whitney Aircraft Company, Pratt & Whitney Aircrafts first engine, the 425 horsepower R-1340 Wasp, was completed on Christmas Eve 1925. On its third test run it easily passed the Navy qualification test in March 1926, by October, the Wasp exhibited performance and reliability that revolutionized American aviation. The R-1340 powered the aircraft of Wiley Post, Amelia Earhart, the R-1340 was followed by another very successful engine, the R-985 Wasp Junior. Eventually a whole Wasp series was developed, both engines are still in use in agricultural aircraft around the world and produce more power than their original design criteria. George Mead soon led the next step in the field of large, state-of-the-art, air-cooled and it was basically a bigger Wasp. In 1929, Rentschler ended his association with Pratt & Whitney Machine Tool and merged Pratt & Whitney Aircraft with Boeing and other companies to form the United Aircraft and his agreement allowed him to carry the Pratt & Whitney name with him to his new corporation. In October 2014, Pratt & Whitney was awarded a million contract with US Defense Department to supply 36 F135 engines for the F-35 fighter. In January 2017,10 employees reportedly left the company, including the head of the F135 engine program, incurred expenses used to transport South Korean officials to the companys West Palm Beach facility in 2012 were deemed unethical, which lead to the departure of the employees. In 2015, the stadium was renamed to Pratt & Whitney Stadium at Rentschler Field in time for the 2015-2016 University of Connecticut football season
34.
Rolls-Royce Holdings
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This article is about the Rolls-Royce aircraft engine and power systems business and its owner since 1987. For previous owners, see Rolls-Royce Limited, for the present day manufacturers of automobiles for BMW, see Rolls-Royce Motor Cars. Rolls-Royce is the world’s second-largest maker of engines and has major businesses in the marine propulsion. All of its shares are tradeable on the London Stock Exchange, Rolls-Royce was the worlds 16th-largest defence contractor in 2011 and 2012 when measured by defence revenues. It had an order book of £71.6 billion as of January 2014. Rolls-Royce Holdings plc is listed on the London Stock Exchange and is a constituent of the FTSE100 Index, as of June 2013, it had a market capitalisation of £22.22 billion, the 24th-largest of any company with a primary listing on the London Stock Exchange. Rolls-Royce grew from the business of F H Royce which was established in 1884 and ten years later began to manufacture dynamos. C S Rolls established a business with F H Royce in 1904 because Royce had developed a range of cars which Rolls wanted to sell. A corporate owner was incorporated in 1906 with the name Rolls-Royce Limited and its business and assets were bought by the government using a company created for the purpose named Rolls-Royce limited. This company remains in existence today and carries on Rolls-Royce business under the name Rolls-Royce plc, Rolls-Royce plc returned to the sharemarkets in 1987 under the government of Margaret Thatcher. In 2003 ownership of Rolls-Royce plc was passed to Rolls-Royce Group plc incorporated 21 March 2003 which issued its own new shares for payment to the previous shareholders. In 2011 in the same way Rolls-Royce Group plc passed ownership on 23 May 2011 to Rolls-Royce Holdings plc a wholly new company incorporated 10 February 2011, Rolls-Royce plc remains the principal trading company. Rolls-Royce Holdings plc, like its predecessor, is merely a holding company. The group included Clarke Chapman, Reyrolle and Parsons, the company was renamed Rolls-Royce Industrial Power Group. It was sold off piecemeal over the decade as the company re-focused on its core aero-engine operations following the recession of the early 1990s. On 21 November 1994, Rolls-Royce announced its intention to acquire the Allison Engine Company, the two companies had a technical association dating back to the Second World War. Rolls-Royce had previously tried to buy the company when General Motors sold it in 1993, owing to Allisons involvement in classified and export restricted technology, the 1994 acquisition was subject to investigation to determine the national security implications. On 27 March 1995, the US Department of Defense announced that the deal between Allison Engine Co. and Rolls-Royce does not endanger national security, in 2000, this restriction was replaced by a more flexible Special Security Arrangement
35.
Credit rating agency
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A credit rating agency is a company that assigns credit ratings, which rate a debtors ability to pay back debt by making timely interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in cases, of the servicers of the underlying debt. The issuers of the obligations or securities may be companies, special purpose entities, state or local governments, non-profit organizations, a credit rating facilitates the trading of securities on a secondary market. It affects the interest rate that a security pays out, with higher ratings leading to lower interest rates, individual consumers are rated for creditworthiness not by credit rating agencies but by credit bureaus, which issue credit scores. The value of credit ratings for securities has been widely questioned, hundreds of billions of securities that were given the agencies highest ratings were downgraded to junk during the financial crisis of 2007–08. Rating downgrades during the European sovereign debt crisis of 2010–12 were blamed by EU officials for accelerating the crisis, Credit rating is a highly concentrated industry, with the Big Three credit rating agencies controlling approximately 95% of the ratings business. Moodys Investors Service and Standard & Poors together control 80% of the global market, when the United States began to expand to the west and other parts of the country, so did the distance of businesses to their customers. Business owners hesitation to extend credit to new customers led to the birth of the reporting industry. Mercantile credit agencies—the precursors of todays rating agencies—were established in the wake of the crisis of 1837. These agencies rated the ability of merchants to pay their debts, the first such agency was established in 1841 by Lewis Tappan in New York City. It was subsequently acquired by Robert Dun, who published its first ratings guide in 1859, another early agency, John Bradstreet, formed in 1849 and published a ratings guide in 1857. Credit rating agencies originated in the United States in the early 1900s, the bond markets in the Netherlands and Britain had been established longer but tended to be small, and revolved around sovereign governments that were trusted to honor their debts. Following the 1907 financial crisis, demand rose for such independent market information, in 1909, financial analyst John Moody issued a publication focused solely on railroad bonds. His ratings became the first to be published widely in an accessible format, in 1913, the ratings publication by Moodys underwent two significant changes, it expanded its focus to include industrial firms and utilities, and it began to use a letter-rating system. For the first time, public securities were rated using a system borrowed from the credit rating agencies. In the next few years, antecedents of the Big Three credit rating agencies were established, Poors Publishing Company began issuing ratings in 1916, Standard Statistics Company in 1922, and the Fitch Publishing Company in 1924. In the United States, the industry grew and consolidated rapidly following the passage of the Glass-Steagall act of 1933. In 1936, regulation was introduced to prohibit banks from investing in bonds determined by recognized rating manuals to be speculative investment securities
36.
Accounting
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Accounting or accountancy is the measurement, processing and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494, practitioners of accounting are known as accountants. The terms accounting and financial reporting are often used as synonyms, Accounting can be divided into several fields including financial accounting, management accounting, external auditing, and tax accounting. Accounting information systems are designed to support accounting functions and related activities, Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, and are prepared in accordance with generally accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States, as of 2012, all major economies have plans to converge towards or adopt the International Financial Reporting Standards. The history of accounting is thousands of old and can be traced to ancient civilizations. By the time of the Emperor Augustus, the Roman government had access to detailed financial information, double-entry bookkeeping developed in medieval Europe, and accounting split into financial accounting and management accounting with the development of joint-stock companies. The first work on a double-entry bookkeeping system was published in Italy, both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb to account had the form accounten, which was derived from the Old French word aconter, which is in turn related to the Vulgar Latin word computare, meaning to reckon. The base of computare is putare, which meant to prune, to purify, to correct an account, hence, to count or calculate. The word accountant is derived from the French word compter, which is derived from the Italian. Accountancy refers to the occupation or profession of an accountant, particularly in British English, Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems. Financial accounting focuses on the reporting of a financial information to external users of the information, such as investors. It calculates and records business transactions and prepares financial statements for the users in accordance with generally accepted accounting principles. GAAP, in turn, arises from the agreement between accounting theory and practice, and change over time to meet the needs of decision-makers. This branch of accounting is also studied as part of the exams for qualifying as an actuary. It is interesting to note that two professionals, accountants and actuaries, have created a culture of being archrivals
37.
PricewaterhouseCoopers
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PricewaterhouseCoopers is a multinational professional services network headquartered in London, United Kingdom. It is the second largest professional services firm in the world, vault Accounting 50 has ranked PwC as the most prestigious accounting firm in the world for seven consecutive years, as well as the top firm to work for in North America for three consecutive years. PwC is a network of firms in 157 countries,756 locations, as of 2015, 22% of the workforce worked in Asia, 26% in North America and Caribbean and 32% in Western Europe. The companys global revenues were $35.9 billion in FY2016, of which $15.2 billion was generated by its Assurance practice, $9.1 billion by its Tax practice, the firm was formed in 1998 by a merger between Coopers & Lybrand and Price Waterhouse. The trading name was shortened to PwC in September 2010 as part of a rebranding, as of 2016, PwC is the 5th-largest privately owned company in the United States. The firm was created in 1998 when Coopers & Lybrand merged with Price Waterhouse, both firms had histories dating back to the 19th century. In 1854 William Cooper founded a practice in London, which became Cooper Brothers seven years later when his three brothers joined. In 1898, Robert H. Montgomery, William M. Lybrand, Adam A. Ross Jr. and his brother T. Edward Ross formed Lybrand, Ross Brothers and Montgomery in the United States. In 1957 Cooper Brothers, Lybrand, Ross Bros & Montgomery, in 1973 the three member firms in the UK, US and Canada changed their names to Coopers & Lybrand. Then in 1980 Coopers & Lybrand expanded its expertise in insolvency substantially by acquiring Cork Gully, in 1990 in certain countries including the UK, Coopers & Lybrand merged with Deloitte Haskins & Sells to become Coopers & Lybrand Deloitte, in 1992 they reverted to Coopers & Lybrand. Samuel Lowell Price, an accountant, founded a practice in London in 1849. In 1865 Price went into partnership with William Hopkins Holyland and Edwin Waterhouse, Holyland left shortly afterwards to work alone in accountancy and the firm was known from 1874 as Price, Waterhouse & Co. The original partnership agreement, signed by Price, Holyland and Waterhouse could be found in Southwark Towers, by the late 19th century, Price Waterhouse had gained significant recognition as an accounting firm. As a result of growing trade between the United Kingdom and the United States, Price Waterhouse opened an office in New York in 1890, and the American firm itself soon expanded rapidly. It was said by those involved with the merger that at the end of the discussion, the partners at the table realized they had different views of business. In 1998, Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers, after the merger the firm had a large professional consulting branch, as did other major accountancy firms, generating much of its fees. Management Consulting Services was the fastest growing and often most profitable area of the practice, the major cause for growth in the 1990s was the implementation of complex integrated ERP systems for multi-national companies. PwC came under increasing pressure to avoid conflicts of interests by not providing some consulting services, particularly financial systems design and implementation, since it audited a large proportion of the worlds largest companies, this was beginning to limit its consulting market
38.
KPMG
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KPMG is a professional service company and one of the Big Four auditors, along with Deloitte, Ernst & Young and PricewaterhouseCoopers. Seated in Amsterdam, the Netherlands, KPMG employs 189,000 people and has three lines of services, audit, tax, and advisory and its tax and advisory services are further divided into various service groups. The name KPMG stands for Klynveld Peat Marwick Goerdeler and it was chosen when KMG merged with Peat Marwick. The firms history dates back to 1870 when William Barclay Peat joined a firm in London and took it over. In 1877 accountancy firm Thomson McLintock opened an office in Glasgow, in 1897 Marwick Mitchell & Co. was founded by James Marwick and Roger Mitchell in New York City. In 1899 Ferdinand William LaFrentz founded the American Audit Co. in New York, meanwhile, in 1917 Piet Klijnveld and Jaap Kraayenhof opened an accounting firm called Klynveld Kraayenhof & Co. in Amsterdam. On the other side of the Atlantic, Frank Wilber Main founded Main & Co. in Pittsburgh in about 1913, in 1925 William Barclay Peat & Co. and Marwick Mitchell & Co. merged to form Peat Marwick Mitchell & Company. In 1963 Main LaFrentz & Co was formed by the merger of Main & Co, in 1969 Thomson McLintock and Main LaFrentz merged forming McLintock Main LaFrentz International. In 1979 Klynveld Kraayenhof & Co, McLintock Main LaFrentz and Deutsche Treuhandgesellschaft formed KMG as a grouping of independent national practices to create a strong European-based international firm. In the United States, Main Lafrentz & Co. merged with Hurdman, in 1990 the two firms settled on the common name of KPMG Peat Marwick McLintock but in 1991 the firm was renamed KPMG Peat Marwick, and in 1999 the name was reduced again to KPMG. In October 1997, KPMG and Ernst & Young announced that they were to merge, however, while the merger to form PricewaterhouseCoopers was granted regulatory approval, the KPMG/Ernst & Young tie-up was later abandoned. In 2001 KPMG divested its U. S. consulting firm through a public offering of KPMG Consulting Inc. In early 2009, BearingPoint filed for Chapter 11 bankruptcy protection, the UK and Dutch consulting arms were sold to Atos Origin in 2002. In 2003 KPMG divested itself of its arm, Klegal. KPMGs member firms in the United Kingdom, Germany, Switzerland and these member firms were followed by Spain, Belgium, the Netherlands, Luxembourg, CIS, Turkey, Norway, and Saudi Arabia. They appointed joint Chairmen, John Griffith-Jones and Ralf Nonnenmacher, each national KPMG firm is an independent legal entity and is a member of KPMG International Cooperative, a Swiss entity registered in the Swiss Canton of Zug. KPMG International changed its structure from a Swiss Verein to a co-operative under Swiss law in 2003. This structure in which the Cooperative provides support only to the member firms is similar to other professional services networks
39.
Deloitte
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Deloitte is one of the Big Four accounting firms and the largest professional services network in the world by revenue and number of professionals. Deloitte provides audit, tax, consulting, enterprise risk and financial services with more than 244,400 professionals globally. In FY2016, the company earned a record $36.8 billion USD in revenues, as of 2016, Deloitte is the 6th-largest privately owned organization in the United States. In 2016, Fortune magazine ranked Deloitte as one of the 100 Best Companies to Work For, in 1845, William Welch Deloitte opened an office in Basinghall Street in London. Deloitte was the first person to be appointed an independent auditor of a public company and he went on to open an office in New York in 1880. In 1896, Charles Waldo Haskins and Elijah Watt Sells formed Haskins & Sells in New York and it was later described as the first major auditing firm to be established in the country by American rather than British accountants. At the time, there were fewer than 500 CPAs practicing in the United States, carter helped convince Congress that independent audits should be mandatory for public companies. In 1947, Detroit accountant George Bailey, then president of the American Institute of Certified Public Accountants, launched his own organization. The new entity enjoyed such a start that in less than a year. Headed by Bailey, the organization rapidly, in part by creating a dedicated management consulting function. It also forged links with organizations established by the co-founder of Touche Niven, George Touche, the Canadian organization Ross. In 1960, the firm was renamed Touche, Ross, Bailey & Smart, in 1968 Nobuzo Tohmatsu formed Tohmatsu Aoki & Co, a firm based in Japan that was to become part of the Touche Ross network in 1975. In 1972 Robert Trueblood, Chairman of Touche Ross, led the committee responsible for recommending the establishment of the Financial Accounting Standards Board and he led the expansion of Touche Ross in that era. In 1952, Deloitte merged his firm with Haskins & Sells to form Deloitte Haskins & Sells, in 1989, Deloitte Haskins & Sells merged with Touche Ross in the USA to form Deloitte & Touche. The merged firm was led jointly by J. Michael Cook, some member firms of Touche Ross also rejected the merger with Deloitte Haskins & Sells and merged with other firms. The name DRT International was therefore chosen, referring to Deloitte, Ross, in 1993, the international firm was renamed Deloitte Touche Tohmatsu to reflect the contribution from the Japanese firm, as well as agreements to use both of the names Deloitte and Touche. In 1995, the partners of Deloitte & Touche decided to create Deloitte & Touche Consulting Group, in 2000, Deloitte acquired Eclipse to add Internet design-based solutions to its consulting capabilities. Eclipse was later separated into Deloitte Online and Deloitte Digital, in 2002, Arthur Andersens UK practice, the firms largest practice outside the US, agreed to merge with Deloittes UK practice
40.
Ernst & Young
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EY is a multinational professional services firm headquartered in London, United Kingdom. EY is one of the largest professional services firm in the world and is one of the Big Four accounting firms, the organisation operates as a network of member firms which are separate legal entities in individual countries. It has 231,000 employees in over 700 offices around 150 countries in the world and it provides assurance, tax, consulting and advisory services to companies. The firm dates back to 1849 with the founding of Harding & Pullein in England, the current firm was formed by a merger of Ernst & Whinney and Arthur Young & Co. in 1989. It was known as Ernst & Young until 2013, when it underwent a rebranding to EY, the acronym EY was already an informal name for the firm prior to its official adoption. In 2016, Fortune magazine ranked EY as 49th of the 100 Best Companies to Work For, EY is the result of a series of mergers of ancestor organizations. The oldest originating partnership was founded in 1849 in England as Harding & Pullein, in that year the firm was joined by Frederick Whinney. He was made a partner in 1859 and with his sons in the business it was renamed Whinney Smith & Whinney in 1894, in 1903, the firm of Ernst & Ernst was established in Cleveland by Alwin C. Ernst and his brother Theodore and in 1906, Arthur Young & Co. was set up by the Scotsman Arthur Young in Chicago. As early as 1924, these American firms allied with prominent British firms, Young with Broads Paterson & Co. in the year 1979, this led to the formation of Anglo-American Ernst & Whinney, creating the fourth largest accountancy firm in the world. Also in 1979, the European offices of Arthur Young merged with large local European firms. In 1989, the four firm Ernst & Whinney merged with the then number five, Arthur Young. The merger plans were abandoned in February 1998 due to client opposition, antitrust issues, cost problems, EY had built up its consultancy arm heavily during the 1980s and 1990s. In 2002, EY took over many of the ex-Arthur Andersen practices around the world, although not those in the UK, China, in 2010, EY acquired Terco, the Brazilian member firm of Grant Thornton. In 2013, EY changed its name from Ernst & Young to EY. EY expanded further and acquired all of KPMG Denmarks operations including its 150 partners,1500 employees and 21 offices. In 2015, EY opened its first ever global Security Operations Centre at Thiruvananthapuram, Kerala in India, in 2017 EY announced it was opening an executive support center in Tucson, Arizona, creating over 125 new jobs. In 2017 the company looking for a location for a new, $4.35 million professional services center in Louisville, Kentucky, creating 125 new jobs
41.
Visa Inc.
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Visa Inc. is an American multinational financial services corporation headquartered in Foster City, California, United States. It facilitates electronic funds transfers throughout the world, most commonly through Visa-branded credit cards, in 2015, the Nilson Report, a publication that tracks the credit card industry, found that Visa’s global network processed 100 billion transactions with a total volume of US$6.8 trillion. Visa has operations across all continents worldwide with the exception of Antarctica, every transaction is checked past 500 variables including 100 fraud-detection parameters—such as the location and spending habits of the customer and the merchants location - before being accepted. Visa is the second largest card payment organization, after being surpassed by China UnionPay in 2015, based on annual value of card payments transacted. Because UnionPays size is based primarily on the size of its market, Visa is dominant in the rest of the world outside of China. In mid-September 1958, Bank of America launched its BankAmericard credit card program in Fresno, California, the original idea was the brainchild of BofAs in-house product development think tank, the Customer Services Research Group, and its leader, Joseph P. Williams. Williams convinced senior BofA executives in 1956 to let him pursue what became the worlds first successful mass mailing of unsolicited credit cards to a large population. Williams pioneering accomplishment was that he brought about the implementation of the all-purpose credit card. The need for a financial instrument was already evident to the American financial services industry. There were already charge cards like Diners Club, and by the mid-1950s, however, these prior attempts had been carried out by small banks which lacked the resources to make them work. Fresno was selected for its population of 250,000, BofAs market share of that population, the 1958 test at first went smoothly, but then BofA panicked when it confirmed rumors that another bank was about to initiate its own drop in San Francisco, BofAs home market. However, the program was riddled with problems, as Williams had been too earnest and trusting in his belief in the goodness of the banks customers. 22% of accounts were delinquent, not the 4% expected, BofA officially lost over $8.8 million on the launch of BankAmericard, but when the full cost of advertising and overhead was included, the banks actual loss was probably around $20 million. However, after Williams and some of his closest associates left, BofA itself could not expand directly into other states due to federal restrictions not repealed until 1994. Over the following 11 years, various banks licensed the system from Bank of America. During the late 1960s, BofA also licensed the BankAmericard program to banks in other countries. For example, In Canada, an alliance of banks issued credit cards under the Chargex name from 1968 to 1977, in France, it was known as Carte Bleue. The logo still appears on many French-issued Visa cards today, in Japan, The Sumitomo Bank issued BankAmericards through the Sumitomo Credit Service
