(Ison, et al., 2006 p. 10)”A ‘pure’ free market economy there would be no government intervention and decision as to the allocation of resources would be taken by individual producers and consumer through a system known as the price mechanism”.
The market economy is a dynamic environment, where the consumers’ choices can influence the producers’ decisions. The producers are motivated by financial results, and tend to follow the consumers’ trends. The market economy has the advantage to rapidly allocate resources without the intervention of the government.
The resources are scarce, and we cannot doubt it. This situation has imposed an analysis of the choices to be made by the companies. The first question is what goods or services will be produced, for the resources are limited. The second question is how to produce, and third point of our analysis is to determine the destination (consumer) of the products and services.
(Sloman, et al., 2010) Mention that there are four categories of industries, according to the type of competition.
The first category is “perfect competition”, an ideal model in which there are many firms competing, and many buyers. As it is an ideal model, we assume that none of the firms has the power to influence price.
Another model is the monopoly, where we can find only one firm in the economic segment, and no competitors.
The other two situations are more likely to be found in real economy, the monopolistic competition – where there are a lot of firms that compete on the market and the barrier to enter in the market is low. Finally, oligopoly is characterized by few firms and a barrier to enter in the market.
The organizations can be divided into public-sector or private-sector. The difference from the two categories is due to the owner and the sources for financing activities. The public sector organizations are owned by the government, and can provide free services. On the other hand the private sector organizations can be owned by individuals or associations of individuals. Private sector organizations are divided according to financial or non-financial commitment.
In the services sector and particularly hospitality, the competitive environment can be analysed by using five key points mentioned by (Tribe, 2011 p. 174): “the threat of entrants”, “the power of entrants”, “the power of consumers”, “the threat of substitutes” and “competitive rivalry”.
The threat of entrants can stimulate price competition and product development. In the market with very few buyers (monopsony) price can be dramatically affected. “The the threat of substitutes” is emerged from new products or services.
The market economy has some disadvantages that are noted by (Ison, et al., 2006 p. 11), one of them is that some individuals with higher income level can affect the choice of producers, and as a result there are consumers unable to purchase goods or services they need. Also the market economy is the field of battle between producers in competition game. Competition can be motivating in developing better products or services, but once large companies rise in an…