Marketing Model

Describe the industry and explain the general pattern of change of the particular market model.

The industry I decided to research is the Diamond Mining industry (De Beers). This industry has been looked upon since the 1800s as a monopoly business. The product of this industry has spread throughout the world with a few numbers of companies being able to dominated De Beers. There was a diamond rush that began in South Africa in the second half of the 19th century which flooded the market with diamonds. Due to the surplus of diamond in South Africa an English-born businessman name Cecil Rhodes, enter the market and monopolize the industry by renting water pumps to miners before buying diamond fields of his own. Mr. Rhodes continued to monopolize this industry by buying the claims of fellow entrepreneur and rival Barney Barnato to create the D Beers Mining Company. As we have study in our class, the surplus of a product will automatically drop the demand of that product. With the surplus the value of any commodity will drop.

Hypothesize the basic short-run and long-run behaviors of the model in the industry you have chosen in a "market economy."

In a near monopolies market model, there is no supply curve. However the quantity of output is heavily dependent on the quantity demand for the product. Therefore profit is almost always a guarantee in a monopoly industry when the market demand is elastic. In the short-run it can continue to make profit because this industry is known as the price maker and not the taker. Also in the short-run there can be a loss of profit because it cannot set its price higher than what the consumers are willing to pay. But the company may continue to carry on its operations. The MR = MC rule is what De Beers will use to determine it profit-maximizing output level. Unlike the purely competitive industry, De Beers can continue to receive economic profits in the long-run. A monopoly industry that is not being profitable in the long-run will have to shut down when (P > ATC).

Analyze at least three (3) possible areas for the industry that could lead to transaction cost, and explain each in detail.

The three transaction cost that I will analyze will be one internal and two external costs. De Beers will have to keep in mind that in order to grow, it will have to make sure that its external transaction costs are higher than its internal cost. If not, the company will have the market open to other companies for business. Advertising is one area that could lead to transaction cost for De Beers. As other countries refused to cooperate with the single channel system with De Beers it had to focus on advertising its brand of diamonds and retail stores. This will lead to the company assuring its customer that it is dedicated to producing the quality they expect. In this case, because its products are not perfect substitutes, it will make the demand less than perfectly elastic. This will make most of its consumer not switch when the prices go up. In order to keep it current consumers it will have to spend more money on advertising. To gain more and more control of the diamond mine globally, De Beers will have to inform customers about more than just the price but will have to consistently remind its customers about the quality of product it produces to gain its customers loyalty. Niche marketing is the second possible areas for the industry that could lead to transaction cost. Niche marketing could lead to transaction cost because the firm will have to continue to stay with the new technologies, the changing customer needs, and emerging markets. The marketing niche which happens to focus on a specific group with special needs in the market will definitely lead to a high transaction cost. The third possible area that could lead to a transaction cost is the Policing and enforcement cost. The Policing and enforcement costs are those costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if it turns out not to be the case. This would lead to transaction cost because as other firms enter the market they would do anything to capture the current firm's customer, therefore not caring much about what the standards are for the industry. De Beers will have to prepare to protect and bring the law enforcement on those businesses that will not abide by the rules and regulation set in place by the leading industry.

Speculate about the behavior that could result from these transactions and propose at least two (2) strategies for dealing with them.

I want to believe that the company will get too focus on the advertising aspect and brand name and end up spending a lot more money than is necessary. At the same time, I speculate that the more the firm advertises it will be able to capture the attention of even new consumers who did not know of them and that will result in the increase of the firm's bottom line. This will increase the company's bottom line because the more the company reaches out to its audience the more the audience will go out to purchase items advertised. Based on my personal experience of the way I respond to ads, I am lead to believe that more consumers will react to the advertisement because central cognitive categories like values, which can motivate behavior and create interest for the specific product. I will propose that the firm search the market and find out what their competitor