Let's define Pareto Efficiency.
From Wikipedia:
Pareto efficiency, or Pareto optimality, is a state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off. The term is named after Vilfredo Pareto (1848–1923), an Italian economist who used the concept in his studies of economic efficiency and income distribution.[citation needed] The concept has applications in academic fields such as economics, engineering, and the life sciences.
Given an initial allocation of goods among a set of individuals, a change to a different allocation that makes at least one individual better off without making any other individual worse off is called a Pareto improvement. An allocation is defined as "Pareto efficient" or "Pareto optimal" when no further Pareto improvements can be made.
Pareto efficiency is a minimal notion of efficiency and does not necessarily result in a socially desirable distribution of resources: it makes no statement about equality, or the overall well-being of a society.[1][2] The notion of Pareto efficiency can also be applied to the selection of alternatives in engineering and similar fields. Each option is first assessed under multiple criteria and then a subset of options is identified with the property that no other option can categorically outperform any of its members.
So, when a market is initially profitable with limited players, e.g. oligopoly, everyone tries to win the market share. For instance, car manufacturers like Toyota, Nissan and Proton compete in the car market. Everyone tries to dominate the market, grows its dominance and establish market segment.
In such condition customers would demand special deals, in pricing, or services. Hence, 吃亏 is the carrot to lure customers. In such case, the more the customer chooses a brand, the larger the market share, and eventually its dominance. In the short run, there is still profit to make, and hence there can be strategic investments in marketing to establish special niche or brand loyalty. In doing so, the firm has to think about how to give in to the target market - thus 吃亏 as there may be special discount, doing more work, etc. Therefore, in long term as the market has more competitors, and moves towards Pareto Efficient, the winner is the brand that gave more carrots.
In the long run, the profit becomes so thin, and when the market is at Pareto Efficient, margin profit equals marginal cost. The firm merely sustain the business. Notwithstanding, at this point the bigger the market share the stronger the firm. Nonetheless, it had already given in, the so call - 吃亏.
In short, the more 吃亏, the larger the market share when the market attends Pareto Efficient.
So, when a market is initially profitable with limited players, e.g. oligopoly, everyone tries to win the market share. For instance, car manufacturers like Toyota, Nissan and Proton compete in the car market. Everyone tries to dominate the market, grows its dominance and establish market segment.
In such condition customers would demand special deals, in pricing, or services. Hence, 吃亏 is the carrot to lure customers. In such case, the more the customer chooses a brand, the larger the market share, and eventually its dominance. In the short run, there is still profit to make, and hence there can be strategic investments in marketing to establish special niche or brand loyalty. In doing so, the firm has to think about how to give in to the target market - thus 吃亏 as there may be special discount, doing more work, etc. Therefore, in long term as the market has more competitors, and moves towards Pareto Efficient, the winner is the brand that gave more carrots.
In the long run, the profit becomes so thin, and when the market is at Pareto Efficient, margin profit equals marginal cost. The firm merely sustain the business. Notwithstanding, at this point the bigger the market share the stronger the firm. Nonetheless, it had already given in, the so call - 吃亏.
In short, the more 吃亏, the larger the market share when the market attends Pareto Efficient.
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