Dr.K.Baranidharan
Present by…
131-07-2013
Engineering Economics
& Financial Accounting
MANAGERIAL
ECONOMICS
231-07-2013
CONCEPTS AND
TYPES OF MARKETS
ENGINEERING ECONOMICS &
FINANCIAL ACCOUNTING
CS FINAL YEAR & IT THIRD YEAR
MARKET
• Market is defined as a place or point at which
buyers and sellers negotiate for exchange of
well-defined products...
• Today with improving technology and modern
facilities, the definition of market has undergone a
sea change
• In the mode...
SIZE OF MARKET
• The size of the market depends on
many factors such as nature of
products, nature of their demand,
tastes...
MARKET CONDUCT
• Market conduct refers to the behavioral aspects
of sellers and buyers operating in a market.
Market condu...
• D) marketing strategies and tactics adopted by
the firms to establish competitive edge over rival
firms.
• These include...
MARKET PERFORMANCE
• When the suppliers/sellers utilize the economic
resource/inputs to their maximum efficiency and to th...
• B) Efficiency in distribution:
• Distribution is the process of storing and
moving the products to consumers often thoug...
• C) Fixation of Prices:
• The price should be fixed at reasonable level leaving
reasonable profit/return to the suppliers...
MARKET STRUCTURE
• Market structure refers to the
characteristics of a market that influence
the behavior and performance ...
• 2.The degree of buyer concentration:
• This refers to the number of buyers and their extent
of purchase of a given produ...
• 4. The conditions of entry to the market:
• Often, there could be certain
restrictions to enter or exit from the
market....
COMPETITIVE MARKET SITUATIONS
• The lesser the power an individual
firm has to influence the market in
which it operates, ...
TYPES OF COMPETITION
• The interconnected characteristics of a market, such as
the number and relative strength of buyers ...
PERFECT COMPETITION
• The theoretical free-market situation in which the
following conditions are met: (1) buyers and sell...
Features of perfect competition
• 1. Large number of buyer and sellers:
• Each buyer buys a small quantity of the total
am...
• 2.Free entry and exit:
• Under perfect competition, there will be
no restriction on the entry and exit of both
buyers an...
• 3.Perfect knowledge:
• Perfect competition implies perfect
knowledge on the part of buyers and
sellers regarding the mar...
• 4.Perfect mobility of factors of
production:
• The second perfection mobility of
factors of production from one use to
a...
• 5. Homogenous Product
• In this case, all sellers produce
homogeneous i.e. perfectly
identical products. All products ar...
• 6. Each firm is a price taker:
• A firm in a perfect market cannot
influence the price though its
own individual actions...
Total Revenue(TR),
Average Revenue(AR) and
Marginal Revenue(MR)
• Total revenue ( TR ) is the total amount
of money(or som...
Total Revenue, Average Revenue and
Marginal Revenue
• Average revenue ( AR ) is the total
amount of money(or some other go...
Total Revenue, Average Revenue and
Marginal Revenue
• Marginal revenue ( MR ) is the
change in total revenue resulting
fro...
• Imagine that one more book is sold. Since the selling is
done at a given market price of rs.10 the additional
revenue (M...
IMPERFECT COMPETITION
• Real world' competition that is less effective in
lowering price levels nearer to the cost levels ...
MONOPOLY
• Market situation where one producer (or
a group of producers acting in concert)
controls supply of a good or se...
• Most governments therefore try to control
monopolies by (1) imposing price controls, (2) taking
over their ownership (ca...
MONOPOLY COMPETITION
• Market situation midway between the extremes of
perfect competition and monopoly, and displaying
fe...
DUOPOLY
• Market situation in which only
sellers supply a particular
commodity to many buyers. Either
seller can exert som...
Example
• A soft drink market with two
companies such as Pepsi and Coke is
called duopoly.
• Basic facilities for satellit...
OLIGOPOLY
• Market situation between, and much more common
than, perfect competition (having many suppliers)
and monopoly ...
Example
• Car manufacturing companies (such as Maruti-
Suzuki, Hindustan Motors, Daewoo, Toyota etc.,)
and Newspapers (suc...
MONOPSONY
• A term used to describe a market
where a very large buyer typically
dominates the price action. In a
monopsony...
Example
•The Food Corporation of
India is the only
government organization
that purchase agricultural
produce such as rice...
DUOPSONY
• Market situation in which only
two buyers create the entire
demand for a commodity
supplied by many sellers a
m...
OLIGOPSONY
• Market situation where
presence of few buyers and
many suppliers creates a
buyer's market. Mirror image
of ol...
Example
• A few news paper publishing
companies in India and all these buy
newsprint from the Government of
India.
• A goo...
Dr.K.Baranidharan
Thank you
K YOU
4131-07-2013
4231-07-2013
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CONCEPTS AND TYPES OF MARKETS,ENGINEERING ECONOMICS & FINANCIAL ACCOUNTING

  1. 1. Dr.K.Baranidharan Present by… 131-07-2013
  2. 2. Engineering Economics & Financial Accounting MANAGERIAL ECONOMICS 231-07-2013
  3. 3. CONCEPTS AND TYPES OF MARKETS ENGINEERING ECONOMICS & FINANCIAL ACCOUNTING CS FINAL YEAR & IT THIRD YEAR
  4. 4. MARKET • Market is defined as a place or point at which buyers and sellers negotiate for exchange of well-defined products or services. • Traditionally, market was referred to a public place in a village or town where provisions and other objects were brought for sale. • Based on location, markets are classified as rural, urban, national or world markets. • Market is said to exist wherever there is a potential for trade 13 August 2013 4
  5. 5. • Today with improving technology and modern facilities, the definition of market has undergone a sea change • In the modern context, market refers to a meeting point of buyer and seller, but not necessary a geographical one. • It is not necessary that the buyer must meet the seller in person. • While traditional avenues such as Value payable by Post (VPP) continue to be popular, e-commerce through internet has been the latest avenue for firms to sell larger volumes of their products and services via online negotiations where necessary. 13 August 2013 5
  6. 6. SIZE OF MARKET • The size of the market depends on many factors such as nature of products, nature of their demand, tastes and preferences of customers, their income level, state of technology, extent of infrastructure, including telecommunications and information technology, time factor in terms of short run or long run and so on13 August 2013 6
  7. 7. MARKET CONDUCT • Market conduct refers to the behavioral aspects of sellers and buyers operating in a market. Market conduct consists of: • A) the business objectives of the firms such as profit maximization and sales maximization or market share. • B) customizing the products as per the specific requirements of buyers such as assembling of a personal computer as per the specifications of the buyer and making it cost effective. • C) improving the quality of the product and making it available at a lower price 13 August 2013 7
  8. 8. • D) marketing strategies and tactics adopted by the firms to establish competitive edge over rival firms. • These include various pricing strategies such as deliberately charging a low price in order to penetrate into the market and expand sales quickly, pricing the product deliberately as a higher level in order to make as much profits as possible in the quickest possible time. • Change in advertising and sales promotion strategies, variations in the quality and make of the products, innovative packaging techniques and design etc.,13 August 2013 8
  9. 9. MARKET PERFORMANCE • When the suppliers/sellers utilize the economic resource/inputs to their maximum efficiency and to the ultimate benefit of consumers, the market is said to be effective in its performance. • The following are the essentials of market performance: • A)Efficiency in production: • When the process of production of goods and services is cost effective, efficiency is said to prevail in production processes. • The firm should make efforts to minimize the costs while maximizing the output. Scale economics should be fully exploited.13 August 2013 9
  10. 10. • B) Efficiency in distribution: • Distribution is the process of storing and moving the products to consumers often though intermediaries such as wholesalers and retailers. • Channel of distribution is the route followed for physical distribution of a product form the manufacturer to the ultimate consumer. • The channel of distribution should be effectively manag3ed to bring down the distribution costs to the minimum and to make the product available to the ultimate customer without any sort of inconvenience.13 August 2013 10
  11. 11. • C) Fixation of Prices: • The price should be fixed at reasonable level leaving reasonable profit/return to the suppliers/sellers. • D) Product performance: • The customers always look for variety, sophistication in design and quality at reasonable price. The firm should provide value-for- money. • E) Improved technology: • Innovations in technology bring down the costs of product and process manufacturing and inprove the features of the product. • The growing demands of the customers can be met better though introduction of process and product innovations. These also reduce the supply costs in real terms.13 August 2013 11
  12. 12. MARKET STRUCTURE • Market structure refers to the characteristics of a market that influence the behavior and performance of firms that sell in that market. • The structure of market is based on the following features: • 1.The degree of seller concentration: • This refers to the number of sellers and their market share for given product or service in the market13 August 2013 12
  13. 13. • 2.The degree of buyer concentration: • This refers to the number of buyers and their extent of purchase of a given product or service in the market. • 3.The degree of product differentiation: • A firm may differentiate its product form that of the competitor though advertising, creating a brand image, product design, variation in quality, packagining location and so on. • This refers to the extent by which the product of each trader is differenciated from that of the other. • Product differentiation can take several forms such as varieties, brands, all of which are sufficiently similar to distinguish them, as a group, from other product 13 August 2013 13
  14. 14. • 4. The conditions of entry to the market: • Often, there could be certain restrictions to enter or exit from the market. The degree of ease with which one can enter the market or exit from it also determines the market structure. • In other words there could be large number of firms if there aren’t many restrictions on entering the market and vice versa 13 August 2013 14
  15. 15. COMPETITIVE MARKET SITUATIONS • The lesser the power an individual firm has to influence the market in which it operates, the more competitive the market is. If a firm can influence the market by offering products and services at better or attractive terms and conditions, it is said to have grater power to influence the market. 13 August 2013 15
  16. 16. TYPES OF COMPETITION • The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market • Four basic types of market structure are (1) Perfect competition: many buyers and sellers, none being able to influence prices. (2) Oligopoly: several large sellers who have some control over the prices. (3) Monopoly: single seller with considerable control over supply and prices. (4) Monopsony: single buyer with considerable control over demand and prices. 13 August 2013 16
  17. 17. PERFECT COMPETITION • The theoretical free-market situation in which the following conditions are met: (1) buyers and sellers are too numerous and too small to have any degree of individual control over prices, (2) all buyers and sellers seek to maximize their profit (income), (3) buyers and seller can freely enter or leave the market, (4) all buyers and sellers have access toinformation regarding availability, prices, and quality of goods being traded, and (5) all goods of a particular nature are homogeneous, hence substitutable for one another. Also called perfect market or pure competition. 13 August 2013 17
  18. 18. Features of perfect competition • 1. Large number of buyer and sellers: • Each buyer buys a small quantity of the total amount. • Each seller is so large that no single buyer or seller can influence the price and affect the market. • Buyers and sellers are price takers in the purely competitive market. • Each seller (or firm) sells its products at the price determined by the market. • Similarly, each buyer buys the commodity at the price determined by the market.13 August 2013 18
  19. 19. • 2.Free entry and exit: • Under perfect competition, there will be no restriction on the entry and exit of both buyers and sellers. If the existing sellers start making abnormal profits, new sellers should be able to enter the market freely. This will bring down the abnormal profits to the normal level. Similarly, when losses will occur existing sellers may leave the market. However, such free entry or free exit is possible only in the long run, but not in the short-run. 13 August 2013 19
  20. 20. • 3.Perfect knowledge: • Perfect competition implies perfect knowledge on the part of buyers and sellers regarding the market conditions. As a results, no buyer will be prepared to pay a price higher than the prevailing price. Sellers will not charge a price higher or lower than the prevailing price. In this market, advertisement has no scope.13 August 2013 20
  21. 21. • 4.Perfect mobility of factors of production: • The second perfection mobility of factors of production from one use to another use. This feature ensures that all sellers or firms get equal advantages so far as services of factors of production are concerned. This is essential to enable the firms and industry to achieve equilibrium.13 August 2013 21
  22. 22. • 5. Homogenous Product • In this case, all sellers produce homogeneous i.e. perfectly identical products. All products are perfectly same in terms of size, shape, taste, colour, ingredients, quality, trade marks etc. This ensures the existence of single price in the market. 13 August 2013 22
  23. 23. • 6. Each firm is a price taker: • A firm in a perfect market cannot influence the price though its own individual actions. • It has no alternative other than selling its products at the price prevailing in the market 13 August 2013 23
  24. 24. Total Revenue(TR), Average Revenue(AR) and Marginal Revenue(MR) • Total revenue ( TR ) is the total amount of money(or some other good) that a firm receives from the sale of its goods. It the firm practices single pricing rather than price discrimination, TR = total expenditure of the consumer = P x Q 13 August 2013 24
  25. 25. Total Revenue, Average Revenue and Marginal Revenue • Average revenue ( AR ) is the total amount of money(or some other good) that a firm receives from the sale divided by the number of units of goods sold. • AR = TR/Q, since TR=P x Q, then AR = P for single pricing practice 13 August 2013 25
  26. 26. Total Revenue, Average Revenue and Marginal Revenue • Marginal revenue ( MR ) is the change in total revenue resulting from selling an extra unit of goods. • MR = TR/Q, where TR = change in TR due to change in Q, Q = change in Q 13 August 2013 26
  27. 27. • Imagine that one more book is sold. Since the selling is done at a given market price of rs.10 the additional revenue (MR) by selling one more unit will be rs.10 • Consider this example. Your are selling notebooks. Each books cost rs.10 your are not going to given any discount or concession even if a buyer purchases more number of books at a time. Suppose 10m books are sold. • The total (TR) revenue is rs.100. the average revenue (AR) is rs.10 (100/10). • Suppose you are selling one more notebook. Since you are selling at the given market price of rs.10, the additional revenue (MR) by selling one more unit will be rs.10 • Thus, under perfect competition Price =Average Revenue (AR) = Marginal Revenue (MR) 13 August 2013 27
  28. 28. IMPERFECT COMPETITION • Real world' competition that is less effective in lowering price levels nearer to the cost levels than the theoretical perfect competition. Conditions that help cause imperfect competition include (1) restricted flow of information on costs and prices, (2) near monopoly power of some suppliers, (3) collusion among sellers to keep prices high, and (4) discrimination by sellers among buyers on the basis of their buying power. 13 August 2013 28
  29. 29. MONOPOLY • Market situation where one producer (or a group of producers acting in concert) controls supply of a good or service, and where the entry of new producers is prevented or highly restricted. Monopolist firms (in their attempt to maximize profits) keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers.13 August 2013 29
  30. 30. • Most governments therefore try to control monopolies by (1) imposing price controls, (2) taking over their ownership (called 'nationalization'), or (3) by breaking them up into two or more competing firms. Sometimes governments facilitate the creation of monopolies for reasons of national security, to realize economies of scale for competing internationally, or where two or more producers would be wasteful or pointless (as in the case of utilities). Although monopolies exist in varying degrees (due to copyrights, patents, access to materials, exclusive technologies, or unfair trade practices) almost no firm has a complete monopoly in the era of globalization13 August 2013 30
  31. 31. MONOPOLY COMPETITION • Market situation midway between the extremes of perfect competition and monopoly, and displaying features of the both. In such situations firms are free to enter a highly competitive market where several competitors offer products that are close (but not perfect) substitutes and, therefore, prices are at the level of average costs (a feature of perfect competition). • Also, some consumers have a preference for one product over another that is strong enough to make them keep buying it even when its price increases, thus giving its producer a small amount of market power (a feature of monopoly). Monopolistic situation is a common situation in all free markets 13 August 2013 31
  32. 32. DUOPOLY • Market situation in which only sellers supply a particular commodity to many buyers. Either seller can exert some control over the output and prices, but must consider the reaction of its sole competitor (unless both have formed an illegal collusive duopoly). 13 August 2013 32
  33. 33. Example • A soft drink market with two companies such as Pepsi and Coke is called duopoly. • Basic facilities for satellite communication are presently provided by the Mahanagar Tlelphoine Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL)13 August 2013 33
  34. 34. OLIGOPOLY • Market situation between, and much more common than, perfect competition (having many suppliers) and monopoly (having only one supplier). In oligopolistic markets, independent suppliers (few in numbers and not necessarily acting in collusion) can effectively control the supply, and thus the price, thereby creating a seller's market. • They offer largely similar products, differentiated mainly by heavy advertising and promotional expenditure, and can anticipate the effect of one another's marketing strategies. Examples include airline, automotive, banking, and petroleum markets. Mirror image of oligopsony.13 August 2013 34
  35. 35. Example • Car manufacturing companies (such as Maruti- Suzuki, Hindustan Motors, Daewoo, Toyota etc.,) and Newspapers (such as The Hindu, Indian Express, Times of India, Economic Times, Eenadu, etc,) • In oligopoly, each individual seller or firm can affect the market price. When The Times of India slashed the price of ots daily newspaper, most other companies such as Indian Express and The Hindu followed suit. • Oligopolistic market situations are very common in sectors relating to manufacturing, transportation, communication and13 August 2013 35
  36. 36. MONOPSONY • A term used to describe a market where a very large buyer typically dominates the price action. In a monopsony, the large buyer is typically able to force prices to decline and this type of market contrasts with a monopoly where a large seller is able to drive up prices.13 August 2013 36
  37. 37. Example •The Food Corporation of India is the only government organization that purchase agricultural produce such as rice and so on.13 August 2013 37
  38. 38. DUOPSONY • Market situation in which only two buyers create the entire demand for a commodity supplied by many sellers a mirror image of duopoly. 13 August 2013 38
  39. 39. OLIGOPSONY • Market situation where presence of few buyers and many suppliers creates a buyer's market. Mirror image of oligopoly. 13 August 2013 39
  40. 40. Example • A few news paper publishing companies in India and all these buy newsprint from the Government of India. • A good number of computer assembly operators who buy computer components on a wholesale basis. 13 August 2013 40
  41. 41. Dr.K.Baranidharan Thank you K YOU 4131-07-2013
  42. 42. 4231-07-2013
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