Economic Theory & IBM Carroll, P. B. "Hurt By A Pricing War, IBM Pla

This research critiques the above referenced article in the context of economic theory related to the market process. The market process is a method of economic organization which permits unregulated prices, and decentralized decisionmaking by participants in the market to resolve basic economic problems associated with consumption, production, and distribution.

I think that the referenced article is relevant to the market process because it describes the response by IBM to significant events in the computer market. One of the tools of the market process is price. The referenced article describes how IBM responded with revisions in its pricing policy to both shrinking market share, and to the pricing policies of competitors.

A price system is a process of resource allocation in an economy. The Ameican economy is, in general terms, a free market economy. In a free market economy, prices are determined in the market, without government interventionfor the most part. One of the theoretical economic concepts associated with the use of prices is that of economic efficiency. Economic efficiency demands that any given output be produced at minimum cost. To produce goods at minimum cost means that both waste and technological inefficiency must be avoided. Prices are

used to find the costminimizing productio

. . .
ing of rates. Reasonableness on the part of the automobile insurers could have likely precluded the success of the voter initiative. The insurers, however, thought that they were in the driver's seat, and refused to compromise on the issue of considering investment income in the setting of rate levels. As a consequence, they were hit with an initiative which went well beyond that question, and altered the industry's entire ratesetting structure. California success in discarding geographic, age, and gender related ratesetting formulas will likely lead to similar actions in all states. A stubborn refusal of the industry to accomodate to consumer concerns could well lead to pbulic sector automobile insurance, such as is found in some Canadian provinces. Browning, E. S. "Collapse of RenaultVolvo Merger Talks Leaves Both Companies Seeking Partners." The Wall Street Journal, 6 December 1989, A10. This research critiques the above referenced article in the context of economic theory related to impure competition. In contemporary market economies, impure competition is the type of competition most often encountered. Purely competive industries, or something even approaching pure competition, is a
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Approximate Word count = 1920
Approximate Pages = 8 (250 words per page)