1. 1. A CASE BASED PRESENTATION ON COMPETITION IN NEWYORK STOCK MARKET
2. 2. PRESENTED BY:- ZAHID MEHRAJ Lovely professional university BBA-MBA
3. 3. WHAT IS A STOCK MARKET? A Stock market is a physical place, sometimes known as stock exchange, where brokers gather to buy and sell stocks and other securities. The term is also used broadly to include electronic trading that takes place over computer and telephone lines.
4. 4. NEWYORK STOCK EXCHANGE : NYSE NYSE is a corporation which is managed and run by a group of directors who are responsible for overseeing their members activity, setting of policies and listening to the securities to be traded. NYSE i.e.; Newyork stock exchange situation prevails as a perfectly competitive market situation.
5. 5. WHAT IS MEAN BY PERFECT COMPETITION? Its a market structure which have a large number of buyers and a large number of sellers. It means, Perfect competition exists when there is a very large number of small companies trading in the same or very similar commodities or services, and none of whom can affect the price by increasing output or restricting it.
6. 6. NYSE- under perfect competition:- q Presence of large number of buyers and sellers of shares. q just like perfect competition situation, the shares prices are determined by market without any influence from individual suppliers and consumers. q since the product sold by perfectly
7. 7. q In NYSE all stocks are more or less homogeneous. q NYSE under PERFECT COMPETITION has ideal maker structure. q perfect knowledge of stock and shares among the sellers and buyers.
8. 8. q there is very much independence of firm actions. q In NYSE individual buyers and sellers of the stock, have an insignificant effect of price like that of perfect competition
9. 9. THE CLOCK TRADING BACKGROUND OF CURRENCY DEALING OF NYSE:- The NYSE market exchange is the market where by buying and selling of world currency for their own takes place. There is a 24-HRS. trading, 5 days of a week( about 9 pm to 10 pm) The trade volume of NYSE which trades only 25 billion dollar per day .
10. 10. over ninety percent of trading in currencies around the world is speculative rather than the buying and selling of currencies to enable people and firms to conduct business in the real economy.
11. 11. Example to Show Stock market is close to a perfectly competitive market:- The sale of 1$ billion worth of stocks by IBM or any other large corporation will certainly affect the price of its stocks. Furthermore, stocks prices can sometimes stock prices becomes grossly overvalued. i.e.; we have a bubble market.
12. 12. In perfect competition, the demand and supply are = 1, i.e.; Ed = 1: a perfectly competitive firm faces a horizontal orperfectly elasticdemand curve, such as the one displayed in the exhibit to the right.
13. 13. SHORT RUN EQUILIBRIUM:- In the short run a perfectly competitive firm may earn supernormal profit, or normal profit or can incur losses, depending on the positions of the short run cost curves.
14. 14. EQUILIBRIUM PRICE:-
15. 15. CASE OF SUPERNORMAL PROFIT:-
16. 16. CASE OF NORMAL PROFITS:- Since no firms earn super normal profits in the short run; some of them also earn normal profits.
17. 17. CASE OF LOSSES:-
18. 18. LONG RUN EQUILIBRIUM:- Mostly in the long run, perfectly competitive firms earn only normal profits.
19. 19. Why stock market is good example for perfect competition? Intheory, a stock market is perfect competition. However, in reality, it is actually an example of verypoor competition. Both in laws and in actual construction, stock markets heavily favor those able to purchase super-high-speed computers (and host them in the exchange itself), and also tend to restrict information to a privileged few while denying it to the majority of users. The consequence is that a stock market actually is veryimperfectcompetition, heavily favoring the established members of the exchange over the ordinary exchange trader.
20. 20. It isn't. As a technical term in Economics, "perfect competition" is the (ideal or theoretical) market structure characterized by a large number of price-taking producers with identical U-shaped cost curves (the minimum of the firm cost curve occurring at an output small in comparison with market demand), who face no barriers to entry, producing a uniform product and selling it to a large number of price-taking consumers, without collusion or price-discrimination.
21. 21. The stock market is characterized by non-uniform commodities (shares in different companies) each with a monopoly supplier. If anything it's an example of monopolistic competition, not perfect competition.
22. 22. HOW THE DECLINE IN ONE MARKET AFFECTS THE OTHER MAKET IN THE WORLD:- When the Newyork Stock Market exchange collapse in October 1987 caused sharp declines in stock markets around the world. And when again 10 years later in 1997, the collapse of southeast Asia led to a sharp decline in the Newyork stock market of other nations.
23. 23. q A perfectly competitive is made up of a large no. of small independent firms each selling identical product to a large no. of buyers. q The firm demand curve is perfectly price elastic because any firm that raises its price sees demand fall to zero as consumers, switch to other producers offering identical product.
24. 24. Perfect knowledge consumers have readily available information about prices and products from competing suppliers and can access this at zero cost in other words, there are few transactions costs involved in searching for the required information about prices.