C5 - Managerial Economics Essay Example | Topics and Well Written Essays - 4250 words

C5 - Managerial Economics - Essay Example The objective of the paper is to provide advice to a large travel agency of Hong Kong from an economic point of view in order to reassess the company’s business strategies. Relevant official data available in the government sites, the local airlines, and travel agencies will also be collected to facilitate the analysis in this study. Our prime focus will be to provide an in-depth analysis of the pricing strategies adopted by the local airline industry by using the concepts of market structure, cost and revenue structure and price discrimination. With this purpose, an in-depth analysis will be conducted through literature review describing the current business environment of Hong Kong airline industry. 2 Background 2.1 Theoretical Background Evidences have revealed that economic factors have a significant influence on the business environment of any and every region (The Times 100, 2008; Kitching & Et. Al., 2009; Floyd & Wooldridge, 1997). Based on this concept, experts have fi rmly stated that macro and micro economic factors, both play a crucial role in influencing the pricing strategies of an industry. Besides, the macroeconomic environment which may greatly affect the demand side of the market, the micro economic factors can be witnessed in terms of the market structure of the industry, the price discrimination taking place in the market scenario, its cost and revenue structure as well as the demand elasticity observed in the industry (Nadar & Vijayan, 2009). Musonera & Ndagijimana (2001) stated that the pricing strategies of an organisation depend largely on the political, economical, technological and social factors. For instance, when the economic factors tend to be highly fluctuating, the pricing strategies of organisations are developed to be flexible which can effectively deal with the economic variations. It is in this context that the aforementioned factors create a string impact on the market structure of firms in an industry which in turn inf luences its pricing structure (Mazzucato, 2000). Hong Kong airline industry is scrutiny by various regulatory bodies, such as Civil Aviation Department, International Air Transport Association (IATA), Airport Authority Hong Kong and others. These regulatory bodies deliver the industry with a strong and well-organised structure (Information Services Department, 2010). The initial factor that will be considered in this study is the influence of market structure on the pricing strategies of the airline industry. Market structure relates to various elements existing in the business environment such as product differentiation, market concentration, economies of scale, vertical integration of the competitors in the market and other similar aspects that in turn define the market structure of an industry. Therefore, market structure can be defined as â€Å"the organisational characteristics of a market that largely determine where it fails on competitive spectrum between monopoly and compe tition†