Introduction to Markets and Pricing Strategies

Unit – IVB.TECH (CSE/ECE/MECH) III Yr

MANAGERIAL ECONOMICS AND FINANCIAL ANALYSIS

Market is defined as a place or point at which buyers and sellers negotiate their exchange of well-defined products or services.

A market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction.

INTRODUCTION

Types of Markets

On the basis of Competition Markets are classified into two types

(a) Perfect Competition (b) Imperfect Competition Perfect Competition: It is a market where

there exist large number of sellers and buyers with perfect competition

Imperfect Competition: It is a market which is further divided into:

(a) Monopoly (b) Duopoly (c) Oligopoly (d) Monopolistic Competition

MARKETS ON THE BASIS OF COMPETITION

The following are the features of perfect competition

(i) Large Number of buyers and sellers (ii) Homogeneous Products or services (iii) Freedom to enter or exit the market (iv) Perfect information available to the

buyers and sellers (v) Perfect mobility of factors of production

What is Perfect Competition?

A competition is said to be imperfect when it is not perfect. In other words, when any or most of the above conditions do

not exist in a given market it is referred to as an imperfect competition

Based on the number of buyers and sellers, the structure of market varies as below:

‘Poly’ refers to seller and ‘Psony’ refers to buyer. Imperfect competition markets are classified as: (a) Monopoly (b) Monopolistic Competition (c) Duopoly (d) Oligopoly (e) Monopsony (f) Duopsony (g) Oligopsony

What is Imperfect Competition?

If there is only one seller, monopoly market is said to exist.

An extreme version of imperfect market is monopoly.

Here a single seller completely controls the entire industry.

What is Monopoly?

Single firm dealing with a particular product or service

No close substitutes and no competitors Can decide either the price or quantity, not

both Monopoly may be created through statutory

grant of special privileges such as licenses, permit, patent rights, and so on

Features of Monopoly?

Inefficient allocation of resources – Restricts the output of his product to increase the price and maximize profits

Exploitation of consumers – By charging higher prices

Wide gap between rich and poor – No consideration whether the consumer is rich or poor

Unfair trade practices – blocking the entry of new firms

Restricted Output – to have a control over the price in the market

Restricted scope to R&D – since no threat doesn’t take initiative to invest in research and development

Is Monopoly Desirable?

When large number of sellers produce differentiated products, monopolistic competition is said to exist.

Products offered are close substitutes They are similar but not identical. A Product is said to be differentiated when

its important features vary. Example: Electrical Companies that

manufacture Air-conditioning with differentiated feature of heating the room

What is Monopolistic Competition?

Duo means two; Poly means sellers. If there are two sellers, duopoly is said to

exist. For example; let’s assume that we have

only two soft drink manufacturing companies like Pepsi and Coke this market is said called Duopoly.

Basic facilities for satellite communication are presently provided by Mahanagar Telephone Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL)

What is Duopoly?

Another variety of imperfect competition is oligopoly

‘Oligo’ means few and ‘poly’ means sellers. Oligopoly refers to few sellers

The examples are the car manufacturing companies such as (Maruti-Suzuki, Hindustan Motars, Daewoo, Toyota and so on. )Newspapers such as (The Hindu, Indian Express etc..)

What is Oligopoly?

‘Psony’ refers to buyer, ‘Mono’ refers to single, ‘Duo’ refers to two, ‘Oligo’ refers to few’

Monopsony - If there is only one buyer, monopsony market is said to exist. Food Corporation of India is the only government orgnisation that purchases the agricultural produce such as rice and so on.

Duopsony – If there are two buyers, dupsony is said to exist

Oligopsony – If there are few buyers, oligopsony is said to exist. For example: There are quite good number of computer assembly operators who buy the computer components on wholesale basis

What are Monopsony, Duopsony, Oligopsony ?

Thank You

“Change your thoughts and you change your world” –

Norman Vincent Peale