FIVE COMPETITIVE FORCES
UPSTREAM MARKETS
SUPPLIERS:
V
Competitive forces
E
through bargaining
R
and economic leverage
T
HOR I ZONTAL RELATIONSHIPS
C
A
PRODUCERS
L COMPETITORS:
OF SUBSTITUTES:
Competitive forces
through rivalry of
sellers in different
markets through
price, advertising,
lobbying etc.
R
E
L
A
T
I
O
N
S
Competitive forces through rivalry
of sellers in same market through
price, advertising, lobbying etc.
POTENTIAL
COMPETITORS:
Competitive for ce
from threat of entry
BUYERS:
Competitive forces
through bargaining
and economic leverage
DOWNSTREAM MARKETS
TYPE OF MARKET PRD DIFF. SELLERS BUYERS
MONOPOLY
OLIGOPOLY
MONOPOLISTIC
COMPETITION
COMPETITION
MONOPSONY
OLIGOPSONY
BILATERAL
MONOPOLY
BILATERAL
OLIGOPOLY
UNIQUE ONE MANY
FEW MANY
PRD DIFF. MANY MANY
STANDARD MANY MANY
MANY ONE
MANY FEW
-
ONE
ONE
FEW
FEW
ONE
FEW
ONE
FEW
TYPE OF MARKET
OBJECTIVE P Q PRO- EFFI
FIT CIENT
MONOPOLY
OLIGOPOLY
Interdependence
MONOPOLISTIC
COMPETITION
COMPETITION
MONOPSONY
OLIGOPSONY
BILATERAL
MONOPOLY
BILATERAL
OLIGOPOLY
S.Run Profit
Large Not
Mkt. Share
Med. Not
Horizontal W A R
Customer
None Exc.
Loyalty
Cap.
Min Cost Lowest HighestNone Yes
Min Price
Yes Not
Min Price
Yes Not
Max Share ? Vertical
of Profit
WAR
Max Share ? Vertical
GENERALIZED DEMAND FUNCTION
f = f( Price:
Taxes,
Price of Complements
Price of Substitutes
Tastes for good/service
Income,
Buyer Expectations,
Number of buyers)
P
Q
GENERALIZED SUPPLY FUNCTION
f = f( Price:
Price of Resources
Technology,
Seller Expectations,
Number of Sellers)
HOW TO BE SHERLOCK HOLMES
IN READING BETWEEN THE LINES
If You Know P and Q then you know whether demand or supply
is involved as well as the direction of the shift.
If You Know the shift in demand or supply, then you know what
is likely to happen to price and quantity
If You Know the determinant that has changed and price,
then you know what is happening to quantity demanded.
If You Know the determinant that has changed and quantity demanded,
then you know what is happening to price.
Lower Price
Lower
Output
Higher Price
Leftward
(downward)
Shift of Demand
Leftward
(upward)
Shift of
Supply
Higher
Output
Rightward
(downward)
Shift of
Supply
Rightward
(upward)
Shift of Demand
Breakdown all shifts into their output and price vectors
Figure 1. Shifts of Supply and Demand
(A)
(B)
SUPPLY SHIFTS:
LEFTWARD (up)
P
Supply
Q
(C)
RIGHTWARD (down)
DEMAND SHIFTS:
LEFTWARD (down)
P
P
Supply
Q
(D)
RIGHTWARD (up)
P
Demand
Q
Demand
Q
Participants
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Markets
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Write down
one market
Type
Circle One of the
four possibilities
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
RULES for VERTICAL DEMAND and SUPPLY SHIFTS
Determinants of supply and demand:
1. A higher price of resources shifts the supply
curve upward.
2. A lower income of buyers (total revenue if firms are
buyers) shifts demand downward.
Implications:
1. A demand shift causes a demand shift
in the same direction for all upstream markets.
2. A supply shift causes a supply shift
in the same direction for all downstream markets.
3. A change in price or quantity in any market translates
into supply shifts in downstream markets.
4. A change in price or quantity in any market translates
into demand shifts in upstream markets.
Participants Markets
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
I=international,N=national,
(Y= yes, N=no)
competition,etc) Left Right Left Right
R=regional, L=local
Lawyers
Seller
Law firms
Labor market
Buyer
Extent: I N R L
Seller Lawyer
Doctors
Buyer
Services
Extent: I N R L
Seller Doctor
Medical Schools
Buyer
Services
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Write down
one market
Type
Circle One of the
four possibilities
Extent: I N R L
Seller
Med Students
Y Nm
Education Services
Buyer
Extent: I N R L
Circle one for
each
market
Circle One Circle
One
Circle
One
Participants
Computer Graphics
Experts
Computer Graphics
Firms
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Monopolistic
Seller
Labor Market
Markets
Buyer
Seller
Extent: I N R
L
computer
Graphics
Y Nm
Ad agency
Buyer
Seller
Brewers
Distributors
American Style
Bars
Buyer
Seller
Buyer
Seller
f 1 m f 1
f 1 m f 1
Y Nm
f 1 m f 1
Y Nm
f 1 m f 1
Brewing
Extent: I N R
L
Y Nm
f 1 m f 1
Retail food & Drink
Consumers
Y Nm
Buyer
___________
Monopolistic
Competition
___________
Monopolistic
Competition
Oligopoly?
___________
Monopolistic
Competition
Wholesale Beer
Extent: I N R
L
Competition
___________
Monopolistic
Competition
Extent: I N R
Advertising
Svcs.
L
Buyer
Seller
Y Nm
f 1 m f 1
___________
Monopolistic
Competition
X
A B CD
X
A B CD
X
A B CD
X
A B CD
X
A B CD
___________
O
A B CD
Write down
one market
Type
Circle One of the
four possibilities
Extent: I N R
L
Circle one for each
market
Extent: I N R
L
Circle One Circle
One
Circle
One
Participants Markets
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
I=international,N=national,
(Y= yes, N=no)
competition,etc) Left Right Left Right
R=regional, L=local
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1
___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Y Nm
f 1 m f 1
___________
A B C D
Write down
one market
Type
Circle One of the
four possibilities
Seller
Buyer
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for
each
market
Circle One Circle
One
Circle
One
Rein in Runaway Costs Associated With Malpractice Insurance
By Daniel H. Belsky, DO, MSc, Boca Raton, Florida in JAOA Vol 103 #6 (June, 2003) p. 263 Letters
1.
I may just be a country doctor from the Pine Barrens of New Jersey, but I have learned some basic math
Through the years. Although there has only been a tenfold increase in the cost of many staple items in the United States,
the cost of medical malpractice insurance has multiplied a thousandfold. Am I missing information that would help
explain why malpractice insurance rates are completely out of line with the rest of our economy?…
2.
How many in the medical profession have been called to the emergency departments of our hospitals to tend to an
Automobile accident victim, a woman with an incomplete abortion, or a woman having a ruptured ectopic pregnancy?
How many in the medical profession have refused to render care to those patients because of their inability to pay?
How many in the medical profession have conducted clinics for the needy in our communities without renumeration
(sic.) or have waived fees for patients in our offices when they had fallen on hard times? If attorneys offered their pro
bono and contingency fee programs to alleged victims of malpractice who cannot afford services and, on successful
Settlement, then collected a fee for hourly services and expenses, that would be a fair and equitable system and
Would ultimately result in lower malpractice insurance rates. I would call that pro bono plus.
3.
Another way to bring down the number of expensive medical malpractice lawsuits involves a time-honored system
to deal with injury in the workplace. It is called compulsory arbitration. The injured employee has his or her case
reviewed by an arbitration board, usually consisting of a union representative, a physician who is an expert in the
area of practice, an attorney, and a lay member. Responsibility is assigned, contributory negligence is determined,
and the board recommends a dollar amount as award. The employee has the option of accepting the decision or
taking the issue further with a lawsuit. If the case makes it to trial, the jury may be informed that the plaintiff turned
down an award recommended by the arbitrators….
4.
There is a move afoot at both the state and federal levels to put a cap on awards for noneconomic damage
(ie., pain and suffering). Arguments abound on both sides of the issue, but I have no doubt that limiting awards to
reasonable amounts would help to drive down the cost of malpractice insurance. Once again, however, we face the
obstacle of attorney-dominated legislatures.
5.
Attorneys have another gimmick to unnerve and harass the medical profession and generate even larger legal
fees: punitive damages. A physician being sued has to seek private counsel to defend against punitive damage, as
that aspect is not covered in a malpractice policy. The threat of the question of liability may force many physicians
to rush to settlement. This aspect of the law should be handled the same as for noneconomic damages discussed
earlier to rein in the runaway costs of malpractice insurance.
Cont’d
6….It has been estimated that approximately 6% of physicians account for 100% of medical malpractice cases. If this is true,
we, as a profession, had better police ourselves more effectively and act quickly when indicated. There are several ways
to deal with chronic offenders. A supervisor could be assigned to oversee patient care provided by a physician with a
history of malpractice lawsuits. A similar program could be instituted in a private practice. Finally, physician retraining
Programs could be initiated by hospitals and medical schools. The physician in question should be held responsible for all
costs associated with his or her rehabilitation program. The state boards of medical examiners have to become more
involved in the process, suspending or revoking the licenses of chronic offenders who defy rehabilitation.
7…Will true reform ever take place in the arena of medical malpractice? I think that it had better- and soon. Our brightest
people are being forced to leave specialty areas with particularly high malpractice insurance rates, leaving academic
Environments for more rural areas of the country with lower medical malpractice insurance rates. What a sad loss for our
academic institutions.
Will young scientific minds continue to be attracted to the medical profession? I fear that most will find other
ways to pursue careers in the sciences. Although the cost of malpractice insurance continues to rise and the fixed costs
of running an office are also increasing, the revenues in physicians’ practices continue to decline in an inverse ratio as
the result of decreased managed care reimbursements.
Organize the following actors into a vertical chain
Patients
Lawyer Services
Lawyers
Labor Market (Lawyers)
Doctors
Labor Market (Doctors today)
Law Firms
Labor Market (Doctors in the
Educational Services
future)
Med Schools
Medical Students
Participants
Markets
Lawyers
Law firms
Seller
Labor market(Lawyers)
Buyer
Seller
Lawyer Services
Doctors
Buyer
Seller
Labor Market (Drs. today)
Medical SchoolsBuyer
Seller
Med Students
Buyer
Seller
Patients
Buyer
Education Services
Labor Market
(Doctors in the future)
2 Separate Chains under Fee-for-Service
Participants
Participants
Markets
Doctors
3rd Party Payors
Insurance Services
Patients
Markets
Seller
Physician Services
Patients
Seller
Buyer
Buyer
ONE Longer Vertical Chain under Managed Care
Participants
Markets
Doctors
Seller
3rd Party Payors
Patients
Buyer
Seller
Buyer
Physician Services
Prepaid Medical Service
Participants
Markets
Lawyers
Law firms
Seller
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
(Y= yes, N=no)
competition,etc) Left Right Left Right
Labor market(Lawyers)
Y
M
f 1 m
F
1
___________
A B C D
Buyer
Seller
Lawyer Services
Doctors
Y
m
F
1
M
f 1
___________
A B C D
Buyer
Seller
Medical SchoolsBuyer
Seller
Med Students
Buyer
Seller
Patients
Labor Market (Drs. today)
Y M f 1 mF 1
Education Services
Y
Labor Market
(Doctors in the future)Y
___________
A B C D
mF 1
M
f 1
___________
A B C D
M
M
f 1
___________
A B C D
f 1
Buyer
Seller
Buyer
Where is the market power in this chain?
Participants
Markets
Lawyers
Law firms
Seller
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
(Y= yes, N=no)
competition,etc) Left Right Left Right
Labor market(Lawyers)
Y
M
f 1 m
F
1
BiOligopoly
___________
Buyer
Seller
Lawyer Services
Doctors
Y
m
F
1
M
f 1
Oligopoly
___________
Buyer
Seller
Medical SchoolsBuyer
Seller
Med Students
Buyer
Seller
Patients
Buyer
BiOligopoly
Labor Market (Drs. today)
Y M f 1 mF 1
___________
Education Services
Y
Labor Market
(Doctors in the future)Y
mF 1
M
f 1
Oligopoly
___________
M
M
f 1
Monopolistic
___________
Competition
f 1
Seller
Buyer
What is the effect of higher malpractice rates?
Participants
Markets
Lawyers
Law firms
Seller
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
(Y= yes, N=no)
competition,etc) Left Right Left Right
Labor market(Lawyers)
Y
M
f 1 m
F
1
___________
A B C X
Buyer
Seller
Lawyer Services
Doctors
Y
m
F
1
M
f 1
___________
A B C D
Buyer
Seller
Medical SchoolsBuyer
Seller
Med Students
Buyer
Seller
Patients
Buyer
Labor Market (Drs. today)
Y M f 1 mF 1
Education Services
Y
Labor Market
(Doctors in the future)Y
___________
A B C D
mF 1
M
f 1
___________ X
B C D
M
M
f 1
___________ X
B C D
f 1
Participants Markets
Writers
Book Publishers
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
I=international,N=national,
(Y= yes, N=no)
competition,etc) Left Right Left Right
R=regional, L=local
Seller
Unpublished
Manuscripts
Buyer
Extent: I N R L
Seller
Book DistributorsBuyer
Seller
Amazon
Customers
Buyer
Y Nm
f 1 m f 1
Book mfg.
Y Nm
Extent: I N R L
Wholesale Books
Y Nm
Retail Mkt.
Buyer
Extent: I N R L
Circle one for
each
market
Y Nm
X
A B C D
?
X
A B C D
___________
f 1 m f 1
___________
f 1 m f 1
Oligopoly
___________ A B C D
f 1 m f 1
Oligopoly
___________ A X
B C D
Extent: I N R L
Seller
?
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
Participants Markets
Hospital Orderlies
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
I=international,N=national,
(Y= yes, N=no)
competition,etc) Left Right Left Right
R=regional, L=local
Seller
Labor Market
Buyer
Extent: I N R L
Hospital Supply
Seller
Biotech Cos.
Buyer
Y Nm
Outdated donated
blood
Extent: I N R L Y
Artificial blood
Y
Surgery & Trauma units
Buyer
Extent: I &
N Trauma
R L
Surgery
Seller
Services
Y
Consumers
Buyer
Seller
f 1 m f 1
___________
A B C D
Nm
f 1 m f 1
Nm
f 1 m f 1
Bilateral
___________ A B C D
Oligopoly
“
___________ X
A B C D
Nm
f 1 m f 1
___________ X
A
B C D
Extent: I N R L
Circle one for
each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities