Introduction
Successful organizations have adopted effective product development strategies that favor them in a perfectly competitive market. Markets are dynamic and can change based on circumventing economic conditions and consumer behaviors. A perfectly competitive market has entry and exit freedom. The market is associated with standardized output without an organization that holds a substantial market share.
The banking industry is a perfectly competitive market since it competes for customers but provides similar products, including loans, deposits, and forex services. The case of the Bank of America can be used to illustrate production decisions and the theory of decision-making in the context of a perfectly competitive market.
Production Decision
A production decision is essential for any business organization, and it can determine its success or failure in the market. The U.S. financial industry is an example of a perfect industry since none of the banks influences foreign exchange rates. Instead, all the banks are dependent on national and international monetary policies (Neaime & Gaysset, 2022).
The banks in the U.S. make production decisions based on consumer demands. For instance, if the demand for loans and credit services is high, they will improve the provision of such services. Meanwhile, a decline in demand for banking services makes the banks focus on other investment activities. Therefore, choosing the concept of production decision is important in understanding how banks make strategies in a perfectly competitive market.
Case Example: The Bank of America
The Bank of America is one of the largest financial services providers in the U.S. and the world at large. The organization operates in more than 35 countries and offers products such as deposits, credits, and foreign currency exchange (Chaudhry et al., 2022). Production decision-making in the Bank of America involves determining lending levels that maximize profits based on the market interest rates (Chaudhry et al., 2022).
The organization determines the demand for loans based on the rate of default, among other risks. On some occasions, the bank has reduced its interest rates to attract more clients in the financial market. Therefore, clients can compare the Bank of America’s interest rates with other banks for effective decision-making.
Risks are inevitable in any business, requiring effective business decisions. The theory of decision-making describes how rational individuals, including business entities, should behave under risks and uncertainties (Kurdoglu et al., 2023). Therefore, effective decision-making involves the adoption and application of rational choice in an efficient manner (Gran, 2023).
In the case of the Bank of America, rational decisions promote its competitiveness in the financial sector amidst risks and uncertainties. In applying the decision-making theory, the Bank of America must first analyze the market conditions around the financial sector. After that, the bank adopts loan pricing strategies that keep its business afloat while attracting more clients.
Conclusion
The perfectly competitive market is beneficial to businesses since they have equal opportunities. Organizations’ success in such a market is dependent on their decision-making and strategies adopted. The U.S. financial sector is an example of a perfectly competitive market.
The case of the Bank of America illustrates how it makes decisions based on the prevailing market conditions. The bank offers favorable interest rates when there is a decline in loan and investment demand. The bank’s decision to first analyze market conditions in the context of loans and interest rates before adopting effective price strategies is in line with the decision-making theory.
References
Chaudhry, S. M., Ahmed, R., Huynh, T. L. D., & Benjasak, C. (2022). Tail risk and systemic risk of finance and technology (FinTech) firms. Technological Forecasting and Social Change, 174, 121191. Web.
Gran, B. (2023). Bank Of America CD rates. Forbes. Web.
Kurdoglu, R. S., Ates, N. Y., & Lerner, D. A. (2023). Decision-making under extreme uncertainty: Eristic rather than heuristic. International Journal of Entrepreneurial Behavior & Research. Web.
Neaime, S., & Gaysset, I. (2022). Macroeconomic and monetary policy responses in selected highly indebted MENA countries post Covid 19: A structural VAR approach. Research in International Business and Finance, 61. Web.