Markets

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Markets

  1. 1. MARKETS PROF.M.GURUPRASAD AICAR BUSINESS SCHOOL
  2. 2. <ul><li>INDIVIDUAL, FIRM, AND RELEVANT MARKET DEMAND FUNCTIONS: </li></ul><ul><li>The nature of the demand function for the individual firm is largely dependent on these conditions: </li></ul><ul><li>The number & relative size of firms in the industry. </li></ul><ul><li>The similarity of the products sold by the firms of the industry; that is, the degree of product differentiation. </li></ul><ul><li>The degree to which decision making by individual firms is independent not interdependent or collusive. </li></ul><ul><li>The conditions of entry and exit. </li></ul><ul><li>on the basis of the nature of these conditions, four specific market structures traditionally have been defined: atomistic competition, monopoly, monopolistic competition, and oligopoly. </li></ul>
  3. 3. Very large Very small Unique product without close substitutes One 3.Complete Monopoly   Some   Some   Large Small l Firms produce close substitutes Identical Large Few <ul><li>2.Imperfect Competition </li></ul><ul><li>Monopolistic </li></ul><ul><li>competition </li></ul><ul><li>Oligopoly </li></ul>None Infinite Identical Large 1. Perfect Competition Degree of control over price Price Elasticity of demand for an individual firm Nature of product Number of firms Kinds of competition
  4. 4. <ul><li>PERFECT COMPETITION: </li></ul><ul><li>LARGE NUMBER5 OF SELLERS AND BUYERS. </li></ul><ul><li>STANDARDIZED PRODUCT. </li></ul><ul><li>COMPLETE INFORMATION ABOUT MARKET PRICES. </li></ul><ul><li>EASY ENTYR INTO AND EXIT OUT OF MARKETS. </li></ul><ul><li>MONOPOLY: </li></ul><ul><li>ONE-FIRM INDUSTRY. </li></ul><ul><li>UNIQUE PRODUCT (NO CLOSE SUBSTITUTES). </li></ul><ul><li>ABSOLUTE CONTROL OVER SUPPLY WITHIN A PRICE RANGE. </li></ul><ul><li>ENTRY INOT INDUSTRY RESTRICTED BY LAW OR VERY DIFFICULT IN PRACTICE. </li></ul>
  5. 5. <ul><li>MONOPOLISTIC COMPETITION: </li></ul><ul><li>LARGE NUMBER OF SELLERS ACTING INDEPENDENTLY. </li></ul><ul><li>PRODUCT DIFFERENTATION. </li></ul><ul><li>PARTIAL (AND LIMITED) CONTROL OVER PRODUCT PRICE. </li></ul><ul><li>EASY ENTRY INTO AND EXIT FORM MARKETS. </li></ul><ul><li>OLIGOPOLY: </li></ul><ul><li>RELATIVELY FEW SELLERS. </li></ul><ul><li>EITHER STANDARDIZED OR DIFFERENTIATED PRODUCTS. </li></ul><ul><li>CONTROL OVER PRICE CLOSELY CIRCUMSCRIBED BY THE INTERDEPENDENCE OF THE COMPETITING FIRMS. </li></ul><ul><li>RELATIVELY DIFFICULT TO ENTER. </li></ul>
  6. 6. <ul><li>NUMBER OF SELLERS AND DEGREE OF DIFFRENTIATION: The starting point for describing an industry is to specify the number of sellers and whether the product is homogenous or highly differentiated. These characteristics give rise to four industry structure types: </li></ul><ul><li>Pure Monopoly: Only one firm provides a certain products or service in a certain country or area (local electricity or gas company). An unregulated monopolist might charge a high price, do little or no advertising, and offer minimal service. If partial substitutes are available and there is some danger of competition, the monopolist might invest in more service and technology. A regulated monopolist is required to charge a lower price and provide more service as a matter of public interest. </li></ul>
  7. 7. <ul><li>Oligopoly: A small number of (usually) large firms produce products that range form highly differentiated to standardized. Pure Oligopoly consists of a few companies producing essentially the same commodity (oil, steel). Such companies would find it hard to charge anything more than the going price. If competitors match on price and services, the only way to gain a competitive advantage is through lower costs. Differentiated oligopoly consists of a few companies producing products (autos, cameras) partially differentiated along lines of quality, features, styling or services. Each competitor may seek leadership in one of these major attributes, attract the customers favoring that attributes, and charge a price premium for that attribute. </li></ul><ul><li>MONOPOLISTICS COMPETITION: Many competitors are able to differentiate their offers in whole or in part (restaurants, beauty shops). Competitors focus on market segments where they can meet customers needs in a superior way and command a price premium. </li></ul>
  8. 8. <ul><li>PURE COMPETITION: Many competitors offer the same product and service (stock market, commodity market).Because there is no basis for differentiation, competitor’s price will be the same. No competitor will advertise unless advertising can create psychological differentiation (cigarettes, beer), in which case it would be more proper to describe the industry as monopolistically competitive. </li></ul><ul><li>An industry’s competitive structure can change over time. </li></ul>
  9. 9. THE PORTER COMPETITIVE FRAME WORK (FIVE FORCES MODEL) INTRA-MARKET RIVALRY Potential Entrants Suppliers Substitute Markets Customers Threat of new entrants Bargaining power of buyers. Threat of substitute products or service Bargaining power of suppliers
  10. 10. THANK YOU

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