NTA UGC NET/JRF Exam, Dec. 2020/June 2021 Commerce (Morning-Shift)

Formation of cartels
The extreme case of non- price completion in on oligopoly is formation of cartels.
Non-price competition is an approach in oligopoly| market where major players of the same-or entiated good opt. for other marketing strategies other| than price competition to gain the market share.
Cartels - A formal agreement among forms producing homogenous good in mutual interest on various, accounts such as price market share or production output etc.

Asymmetric information between managers and investors

Pecking order theory in finance is based on the assertion of Asymmetric information between managers and investors.

Asymmetric information is used to describe a situation between two parties in an economic transaction where one party has more or better information than the other.

Pecking order theory is popularized by Myers & majluf (1984) where they argue that equity is less preferred means to raise capital because when managers (who are assumed to know better about true condition of the firm than investors) issue new equity, investors believe that managers think that the firm is overvalued and managers are taking advantage of this over valuation.

It results investors will place a lower value to the new equity issuance.

A residual dividend policy is the tenet that a firm's investment, financing and dividend policies should be interrelated, even in the short run.

With such a policy the cash flow remaining after the firm makes its new investments determine the dividend size.

In theory, value- maximizing managers will invest only to the degree that positive net present value (NPV) investments are available.

When managers exhaust all such opportunities, the firm pays the residual cash flow as the dividend.

There is no change in r but byx changes to 5byx and bxy changes to bxy/5.