Introduction to markets and pricing strategies


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Introduction to markets and pricing strategies

  1. 1.  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.
  2. 2.  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
  3. 3.  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
  4. 4.  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
  5. 5.  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.
  6. 6.  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
  7. 7.  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
  8. 8.  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
  9. 9.  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)
  10. 10.  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..)
  11. 11.  ‘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
  12. 12. Thank You