Market Failures in Movie Rentals

In: Other Topics

Submitted By ktaylor32
Words 914
Pages 4
Market Failures in Movies Rentals
Katelyn Cuffle
April 12, 2014

In today’s economy the technological advancements and market shifts have taken a toll on big businesses all over. Blockbuster, one of the well known movie stores suffered because it couldn’t keep up with the fast moving market shift in using new technology to rent movies on demand and now they are closed. The purpose of this report is to inform readers about market failures that happen when new technological advancements take over. Next this report discusses how adjusting to market shifts affect businesses. Finally this report discusses a solution that could help solve the problem for stores that can’t generate enough customers to come in because of technology. In the past couple years we have seen the “industry entertainment and media giants lose revenue as young upstart companies (or larger ones with visionary leaders) leverage the capabilities of the Web to outperform them. And now we're watching them go bankrupt as they fail to reinvent their business models to counterbalance the distribution of information online (Welchman, 2010).” Blockbuster is a well known business who because of the new technology advancements like ordering movies from your television and having Netflix went bankrupt. In today’s economy technology is moving at a fast rate and for a lot of businesses there having problems keeping up. “Frequently big business is grid-locked with a deep and nested organizational structure which makes horizontal collaboration and operational change difficult to achieve. And associated operational supports are frequently aligned to them - making the organization bloated and slow-moving. On the other hand, small…...

Similar Documents

Market Failure

...Invisible hand, Market failure and Government intervention Invisible Hand Invisible Hand, term used in the book “The Wealth of Nations”, by classical economist Adam Smith, to characterize the idea that a guiding force leads individuals seeking their own economic self-interest to act in ways that also benefit society. A vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in them. Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market-clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics. The efficient outcome will have been brought about through parsimony in the use of information; the only things that individuals, in making their supply/demand decisions, need to know are the prices of the different commodities. Furthermore, since the efficient outcome...

Words: 1526 - Pages: 7

Market for R&D Failures

...Mike Rondesko, KaChun Fung, Daniel Lozano, Jose Romero Professor Pe’er Final Essay 18 December 2012 Market for Trading R&D failures Advancing ones knowledge based on past failures is vital towards furthering intellectual development. Without understanding as to why something doesn’t work, it would be very unlikely that an efficient goal can be reached. This same concept applies to research and development projects in the modern day industry. Using the knowledge of recent failures is what drives progress and technological advancements. However, discovering failures is insensitive to time, resources, and capital in an ever changing world of product innovation. If knowledge of research and development failures were known to firms prior towards their attempt, product growth would be quicker, less risky and more profitable. A market that traded intellectual failures would be beneficial towards the firm and its stakeholders while improving market efficiency. Since understanding failures is so important towards the progression and advancement of a product, there should be a market in which firms can trade R&D failures. However, this market does not exist. Yet, if we can argue that there are advantages for firms to possess more intellectual knowledge, than this market can have hypothetical value. One of the main reasons why there is currently no market for R&D trading is because it can be advantageous towards a firm’s competition even at a cost. If competitors...

Words: 3313 - Pages: 14

Asymmetric Information & Market Failure

...|Discuss the reasons why asymmetric information can be a source of market failure. Use examples to illustrate your answers. | |By Andrew Sweeting | |November 1998 | |Introduction | |This essay is concerned with the issue of information in microeconomics, particularly where information is a factor in the failure of| |individual markets in an economy. Economic information and its importance in microeconomics is initially discussed, and continues | |with defining asymmetric information, which is a factor that can lead to a market failure. | |In the analysis of asymmetric information in markets, ex ante and ex post asymmetries information are discussed in relation to market| |transactions. Ex ante asymmetric information can be explained through Adverse Selection in relation to quality of goods in the | |product market, and ex post asymmetric information can be explained through Moral Hazard in insurance markets. Strategies to correct | |market failure(s) caused by these information asymmetries is addressed for each example discussed. ...

Words: 1028 - Pages: 5

Competition in the Movie Rental Industry: Netflix and Redbox

...SUBJ: A Look at the Competition Within the Movie Rental Industry EXECUTIVE SUMMARY: Analysis: The competitive forces in the movie rental industry are quite strong, as I will explain through the five forces model. There are a vast amount of substitutes for watching a movie. You can go to a play, sporting event, concert, out the lake/beach, go for a run, watch regular television, go shopping; I could go on and on. Also, torrenting or pirating movies is growing increasingly popular. Buyers have a strong presence in this industry mainly because they are picky about how much they will pay to rent or stream a movie. With the amount of substitutes and their pickiness, they make this industry more competitive than what it may seem. Suppliers can make this industry very difficult because there is so much red tape in the movie industry. There are copyrights and restrictions on everything. This gives the supplier a lot of leverage and for the most part, they know that they can demand a price of just about anything. I see the potential and threat of new entrants being moderate to strong. First off; many customers have their loyalties whether it be to Netflix, Redbox or a local hometown movie rental. Secondly; pricing, availability and quality are all key factors. Lastly you have to have a large sum of money upfront in order to get the ball rolling. As I mentioned prior, gaining rights from movie companies is not cheap. The rivalry among the competitors is rather intense as......

Words: 1707 - Pages: 7

Market Failure

... Economics Essay – Market Failure 1. Markets fail when they under or over allocate resources of production or consumption, relative to the best interests of society. Market failure occurs due to four main factors: the existence of externalities, asymmetric information, the abuse of monopoly power, and inequalities and wealth and development. The existence of externalities means that the market mechanism does not always work efficiently. Markets run on a mechanism that only takes into account the private benefit and cost for a good. Besides the marginal private cost and marginal private benefit, there are the marginal social cost and marginal social benefit, which are external. As a result, governments must find responses to try to solve these market failures. 2. Externalities are the effects of market activities on other people that are external to the market. They are either positive externalities or negative externalities. When the social benefit of a good equates the social cost, it is known as the social optimum. Goods that have large positive externalities can either be public goods or merit goods. Public goods are non-rivalrous and non-excludable, while private goods, such as a merit good, are rivalrous and excludable. When a good has large positive externalities, the government should support its production. When a good has large negative externalities (demerit good), the government should limit or stop its production and consumption. Markets can fail in......

Words: 1706 - Pages: 7

Market Failure

...Situation 1: The motorcycle helmet market has 13 companies, and four firm concentration ratio of 26%. While the helmets have a variety of designs, they are sold at very similar prices. Recently, the death rate from head injuries in motorcycle crashes has been rising. The producers advertise their helmets as “effective,” but some helmets withstand most falls and others are produced with materials that are more likely to crack in commonly experienced falls. The weaker helmets cost about $8 less to produce. There is no simple way for consumers to determine helmet safety. a) This is a case of market failure caused by externalities emanating from some production agents of the helmets producing lower quality hence weaker helmets while still pricing them at the same price level as the safer, higher quality helmets. This causes a high negative production externality as the consumers will eventually lump all helmets as unsafe, which will negatively affect the other companies as the consumers cannot determine easily the safety of the different brands of helmets. Thus, the consumers may opt to forego riding motorcycles altogether. b) Since the producing agents of the weaker helmets are only considering maximizing the profits at the expense of quality and safety, they do not take into consideration the social costs associated with the use of weaker helmets. Initially, the production agents for these weaker helmets will receive high marginal benefits than marginal costs due to...

Words: 2154 - Pages: 9

Market Failure

...Market Failure An Economic Analysis of its Causes and Consequences Vani K. Borooah * Professor of Applied Economics University of Ulster February 2003 * School of Economics and Politics, University of Ulster, Newtownabbey BT37 0QB, Northern Ireland ( I am grateful to the Department of Finance and Personnel (Northern Ireland) for supporting this work though, needless to add, I alone am responsible for the contents of this paper and, indeed, for any of its deficiencies. 1. Introduction Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market- clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency1. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics2. These results - which are, of course, a vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in themselves. But there is more. The......

Words: 14595 - Pages: 59

Market Failure of Textile Industry

...Market Failure It occurs when the forces of market fails to allocate resources efficiently. Some causes of market failure include imperfect competition, external costs, etc. Our focus will be on external cost and how Bangladesh’s textile industry has contributed to market failure. Overview of Bangladesh’s Textile Industry Textile industry is the second largest industry in the world next to agriculture. Bangladesh has emerged, in just under a decade, as the twelfth largest textile manufacturing nation in the world. This industry has been one of the most success stories of Bangladesh over the last two decades. Textile industries are one of the largest and vital industrial sectors of Bangladesh with regard to earning foreign exchange and labor employment, providing 4.5 million jobs of which 80% are women and contributes 13% to GDP. A huge 78 percent of the country’s export earnings come from textiles and apparel, according to the latest figures available. Bangladesh exports its apparel products worth nearly $5 billion per year to the United States, European Union, Canada and other countries of the world. It is the sixth largest apparel supplier to the United States and EU countries. Combined, the textile and apparel sectors consist of 3,600 firms. There is a concentration of manufacturing activity in and around the capital city of Dhaka and a growing garment manufacturing presence in the country’s export processing zones. Environmental hazard arising from textile......

Words: 1814 - Pages: 8

Movie Rental Survey

...Which services do you use to rent movies through (check all that apply)? Movie Rental store Netflix Redbox iTunes Cable Service Other Which service do you use the most to rent movies through? Movie Rental store Netflix Redbox iTunes Cable Service Other A year ago which service would you have used the most to rent movies from? Movie Rental store Netflix Redbox iTunes Cable Service Other Have your habits changed in the last year when renting a movie? Yes No On average how many movies do you buy in a month? 1 or less 2-4 4-6 6 or more What is your movie knowledge? Very knowledgeable Knowledgeable Somewhat Knowledgeable No knowledge Please rank the genre that you like the best from 1 to 9, 1 being your most favorite and 9 your least favorite. - Action/Adventure __________ - Romance __________ - Comedy __________ - Drama __________ - Horror __________ - Musical __________ - Children/Family __________ - Documentary __________ - Sci-Fi/Fantasy __________ How much do you spend on movie rentals a month? 0-5 dollars 5-10 10-15 15-20 20 or more When renting movies do other people influence what you rent? Very Often Often Sometimes Not Often Never How has the internet affected the number of movies you currently rent? Increased the number of rentals Stayed the same Decreased the amount I rent When choosing your rental service rate thiese factors in which is most important to you (1......

Words: 845 - Pages: 4

Market Failure

...Market Failure Market Failure generally is the outcome of market’s not being ‘economically efficient’ along with numerous factors helping account for this. If a market begins to saturate or for example a business begins to enjoy monopoly power in their market, the Government can therefore intervene to help make the market more competitive resulting in benefits for both consumers and the economy. Public Goods A reason why government intervention may be necessary is due to their not being enough Public Goods provided by the free market. Public goods such as Street Lights and Public Parks are both non-excludable, where it is not possible to provide a good to one person without it being able to another, and also non-rivalry, where the consumption of a good will not prevent another from enjoying it as well. For these reasons, it is unlikely that a public sector organisation will be able to accommodate for Public Goods, this is why Government action needs to be taken to make them available which is generally funded through taxation. Merit Goods Another reason why government intervention may need to be taken is due to Merit Goods. These are goods that the government feels that if left to themselves without intervention, they will be under-consumed and have to be subsided. If things such as education was not funded for, the government feels that people will not make use of it and in this example, student would just drop out, resulting in their being less......

Words: 456 - Pages: 2

Market Failure

...What Determines the Supply for a Good or Service in a Market? ________________________________________________________ Shape of the Supply Curve It slopes upwards for two reasons: 1) Rising prices provide an incentive for firms to produce higher quantities. 2) Law of Diminishing Returns – production costs are higher as higher quantities are produced so producers need to charge consumers more. Movement along the Supply Curve Increased P Increased S : expansion/extension of supply. Decreased P Decreased S : contraction of supply. Shifts in the Supply Curve Shift outwards – increase in supply. Shift inwards – decrease in supply. Non price determinants of supply cause shifts: 1) Production Costs – increased costs lead to decreased supply and an inward shift. 2) Technology – new technology leads to increased efficiency and decreased costs of production – outward shift in the S curve. 3) Indirect Taxation – increase production costs and decrease supply – specific tax (fixed amount per unit) and ad valorem tax (percentage of total price e.g. VAT. Specific Tax: Ad Valorem Tax: 4) Subsidies – decrease costs of production – increase S. 5) Producer Cartels – group together to control P and Q of a good – illegal in the UK. E.g. OPEC (organisation of petroleum exporting countries) can increase or......

Words: 477 - Pages: 2

Market Failures

...Market Failures by Erik F. Meinhardt This section sets out to define and describe market failures, how government intervention prevents them or minimizes their effects, and the arguments against government intervention. I. Definitions and descriptions Market failure occurs when free markets do not bring about economic efficiency, that is to say when a Pareto sub-optimal allocation of resources exists in a particular economy. Market failures remain one of the best reasons for government intervention within an economy on moral and economic grounds, arguably, in the best interest of the public. The following are detailed descriptions of several market failures in no particular order: A. Public goods—Public goods are goods wherein the consumption of them does not necessarily prevent another person from also consuming it, nor does that consumption make less of the good available for consumption by others. Scholars commonly present breathable air as an example of a public good for virtually everyone has access to consume it and its consumption does not limit the amount available. Public goods pose a problem for the market because by their nature it cannot provide for them. The private sector will not make a profit from a good which everyone can enjoy whether or not they pay for it. The lighthouse example comes to mind: no matter who pays for the construction of a lighthouse on a particular island, every passing ship will benefit from the protection it provides and...

Words: 1536 - Pages: 7

Market Failure

...Immobility * Occurs when barriers between markets prevent factors of production moving from one area to another to find employment * Land is completely immobile and certain types of capital, for examples factory buildings, can only be moved with extreme difficulty and cost. * Usually geographical immobility refers to the ease or difficulty of labour moving between different areas of the country, or between countries. Factors for geographical immobility: 1. Financial costs in moving home 2. Cost of selling house and removal expenses 3. Large regional variation in house prices which leads to a shortage of affordable housing. 4. Family and Social Ties 5. Immigration controls and language differences Occupational Immobility * Arises when workers lack the skills to move between different types of employment, and because it would be very expensive and time consuming to train workers to have the necessary skills to switch between certain jobs. * Sometimes training is not available and some workers lack the aptitude of taking on different types of employment. * For example, workers made redundant in the coal mining industry lack the specific skills that are needed in growing industries such as the provision of financial services. * All this leads to unemployment and a waste of scarce resources, and contribute to market failure in factor markets. Information Failure * Information failure occurs when people have inaccurate,......

Words: 589 - Pages: 3

Economics - Market Failure

...Environmental Market Failure Negative Externalities Costs imposed on a 3rd party not involved with the consumption or production of the good (the external cost)  Divergence between private and social cost  MSC=MPC+MEC  The MEC = the negative externality  The free market price is less than the optimum price leading to over consumption  Welfare loss Q: The market generated quantity (where privates crosses private) Q1: The optimum quantity (where social crosses social) Over consumption of Q-Q1 Unequal Distribution Effects  Citizens in poor countries are more likely to be affected by the consequences of global warming that those in rich countries  E.g. drought/flooding  They are also a lot less likely to have consumed the goods and services which caused the global warming  And a loss less able to protect them selves e.g. through insurance policies  There are inequities between those who contribute to global warming and those who suffer from it  Citizens of developed (polluting) countries pay less for their goods and services than the social costs of their production  MSC=MPC+MEC Government Intervention to correct Environmental Market Failure 2 main types:  Market based measures Designed to modify the price mechanism using strategies such as taxes and subsidies  Government regulation Sometimes referred to as “Command and Control”, designed to create incentives for firms to reduce......

Words: 1530 - Pages: 7

Market Failure

...Running head: CASE OF TCL & ALCATEL Market Failure Paper: Case of TCL and Alcatel Joint Adventure Jennifer Long Grand Canyon University: ECN 601 April 11, 2012 In the contemporary society, many multinational enterprises would like to use joint venture as their favorite entry mode due to its unique advantages, such as: directly access to the partner’s knowledge, sharing development costs and risks. Meanwhile, it is important to figure out the factors that will cause failure of a joint venture. Some major factors are culture difference, poor leadership and insufficient planning which are all fatal to the operation of joint venture. Cultural differences have direct influences on international joint venture performance through management practice and organizational learning; poor leadership will result in bad business integration and even wasting the preciously initial funds; insufficient planning may trouble company in the long term. In the article from the China Daily, many Chinese companies are now hoping to utilize global partnerships to make inroads in the major international markets (China Daily, 2011). If a company wants to speed up the expansion, it may decide to use surplus resources or raise further cash by cooperating with another existing business. Joint venture can be defined as an entity formed between two or more parties to undertake economic activity together. Chairman of TCL Corporation explained that TCL was most attracted to......

Words: 978 - Pages: 4