Pricing and markets


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Pricing and markets

  1. 1. Prepared by: Namita Sharma
  2. 2. Market is a place where buyers and sellers appear to conduct exchange transactions. The only requirement of a market is that all potential buyers and sellers should be in close contact with each other to conduct exchange transaction. According to Cournot : “Market is not any particular place in which things are bought or sold, but the whole of any region in which buyers and sellers are in such free interaction with each other that the prices of the same goods tend to equality easily and quickly”. Basic Features :  Buyers  Sellers  Interaction  Existence of a commodity  Price
  3. 3. Market:  Benham stated market ‘’as any area over which buyers and sellers are in close touch with one another either directly or through dealers , that the price obtained in one part of market affects the price paid in other”  Stonier and Hague explains the term market as'' any org whereby buyers and sellers of good r kept in close contact with each other…there is no need to for a market to be in a single building…  the only essential for a market is that all buyers and sellers should be in constant touch with each other , either because they r in the same building or because or they r able to contact through telephone or internets.
  4. 4. Market Classification  On the basis of area  On the basis of nature of transaction  On basis of volume of business  On the basis of time  On the basis of status of seller  On the basis of regulation
  5. 5. PERFECT COMPETITION  Definition of Perfect competition:  A market in which there are many small firms, all producing homogeneous goods.  No single firm has influence on the price of the product it sells.
  6. 6. Perfect competition:  A very large no of relatively small buyers and sellers . • All sellers sell homogenous products • The firms are free to enter or leave the market • The firms in industry don’t collude with each other . • The factors of production must be free to enter or leave the industry. • Each buyer and seller operates under the condition od certainty.
  7. 7. 1. Pure/Perfect Competition  Large number of buyers and sellers  Identical product  Well informed buyers and sellers More Competition Less Competition
  8. 8. Pure/Perfecct Competition QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Many buyer/sellers + Identical Products
  9. 9.  Feature of Perfect competition  Many buyers / Many sellers  Homogeneous Products  Low-entry / exit barriers  Perfect information – For both consumers and producers  Firms aim to maximize
  10. 10. PERFECT COMPETITION  Advantages of perfect competition:  High degree of competition helps allocate resources to most efficient use  Price = marginal costs  Competition encourages efficiency  Firms operate at maximum efficiency  Consumers benefit: consumers charged a lower price  Responsive to consumer wishes: Change in demand, leads extra supply
  11. 11. PERFECT COMPETITION  Disadvantage of perfect competition:  The conditions for perfect competition are very strict, there are few perfectly competitive markets  Insufficient profits for investment  Lack of product variety  Lack of competition over product design and specification  Unequal distribution of goods & income  Externalities e.g. Pollution
  12. 12. Price determination: Normal profit ( AC=AR)
  13. 13. Perfect Competition: Supernormal Profit/abnormalProfit(AC<AR)
  14. 14. Perfect Competition:Loss( AC>AR)
  15. 15. MONOPOLY: • The single firm producing the product is in itself both the firm and industry. • No rivalry or direct competition • Indirect rivalry may occur in form of the existence of small substitutes • They are price makers
  16. 16. Monopoly  Only one seller of a particular product  Few monopolies
  17. 17. Monopoly  One seller dominates the market with no close substitutes More Competition Less Competition
  18. 18. Monopoly  Natural Monopoly - efficient production by a single supplier  San Diego Gas & Electric
  19. 19. Monopoly  Geographic Monopoly - small town
  20. 20. Monopoly 1. Technological Monopoly - new invention  Patent: exclusive right for 17 years  “The Segway PT is a two- wheeled, self-balancing, battery-powered electric vehicle invented by Dean Kamen. It is produced by Segway Inc. of New Hampshire, USA. The name Segway is a homophone of the word segue, meaning smooth transition” Segway
  21. 21. Monopoly 1. Technological Monopoly - new invention  Copyright: lifetime + 50 years  “The National Football League is a professional American football league that constitutes one of the four major professional sports leagues in North America” This telecast is copyrighted by the NFL for the private use of our audience. Any other use of this telecast or of any pictures, descriptions, or accounts of the game without the NFL’s consent, is prohibited.
  22. 22. Monopoly 1. Government Monopoly - government owned businesses
  23. 23. MONOPOLY’S CHARACTERISTICS  A single firm selling all output in a market : it is a direct contrast to perfect competition.  Unique product:  Barriers to Entry and Exit.  Government license or franchise  Resource ownership  Patent and copyrights  High start- up cost  Decreasing average total cost  Specialized information
  24. 24. Indian railways: as Monopoly
  25. 25. ADVANTAGES OF MONOPOLY  Import the products and compete with foreign companies  Complete freedom in selecting prices or quantity  No guarantee of profitability........ there is only one firm
  26. 26. DISADVANTAGES OF MONOPOLY  The prices charged even increase prices  Reduce the quality of the products  Reduce the satisfaction of the customers  Cause many disadvantages for the employees of the company
  27. 27. Origin of monopoly :  Patent rights for products  Gov. policies such as granting licenses or imposing foreign trade restrictions.  Ownership and control over some strategic raw materials  Exclusive knowledge of technology by the firms.  Size of the market can accommodate a single firm  Prevention of entries
  28. 28. Monopolistic competition • It refers to the situation where there are many sellers of differentiated products . There is competition keen though not perfect, between many firms making very similar products .since the product is differentiated each seller can independently decide about his own price output policies. FEATURES • Many number of sellers • Product differentiations • freedom of entry and exit
  29. 29. MONOPOLISTIC COMPETITION What is Monopolistic Competition? Monopolistic Competition, also called competitive market, where there are a large number of independent firms which have a very small proportion of the market share
  30. 30. MONOPOLISTIC COMPETITION Characteristics of Monopolistic Competition  There are many buyers and sellers.  Products differentiated.
  31. 31. MONOPOLISTIC COMPETITION There are few barriers to entry and exit. Each firms may have a tiny “monopoly”. Firm has some control over price.
  32. 32. MONOPOLISTIC COMPETITION Monopolistic Competition and Perfect Competition.  Monopolistic competitive firms produce products that are not perfect substitutes or are at least perceived to be different to all other brands products.  Unlike in perfect competition, the monopolistic competitive firm does not produce at the lowest possible average total cost  Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. While monopolistic competition is inefficient, perfect competition is the most efficient, with supply meeting demand and production therefore matching this, so stock is not sat in storage for prolonged periods or going to waste
  33. 33.  Price difference with in price range  Increase elasticity of demand  Price war  Gift articles  Unfair methods
  34. 34. Price discrimination  It is said to exist when the same product is sold for different prices to different buyers. Conditions for price dicr. Are:  Difference in price elastisities.  Market segmentation  Efficient separation of sub markets  Legal sanction for price discrimination  Various brands  Some buyers are ignorant or lack mobility
  35. 35. Monopolistic Competition Are these shampoos/conditioners different? Pantene $14.50 Frederic Fekkai $54
  36. 36. Monopolistic Competition Are these products different? Maybelline Sisley $4 $43
  37. 37. Monopolistic Competition Same as pure competition except for product differentiat Gap Levis Lucky
  38. 38. MONOPOLISTIC COMPETITION Monopolistic Competition Examples: books, restaurants, grocery stores, shoes, clothing, coffee, chocolate…
  43. 43. Monopolistic Competition: Price Determination- Normal Profit
  44. 44. Monopolistic Competition: Price Determination- Abnormal Profit
  45. 45. Monopolistic Competition: Price Determination- Loss
  46. 46. Oligopoly : • Is a situation where a few large firms compete against each other and there is an element of interdependence in the decision making of these firms…features of oligopoly are • Small number of large sellers • Interdependence • Existence of price rigidity • Presence of monopoly element • Advertising • Restriction to the entry
  47. 47. Oligopoly  A few very large sellers dominate the industry  Oligopolists act independently by lowering prices soon after the first seller announces the cut  Collusion: formally agree to set prices  Engage in price wars More Competition Less Competition
  48. 48. Oligopoly Ipod Zune
  49. 49. Oligopoly Few producers control supply and price
  50. 50. Coca-Cola Classic  Coca-Cola classic  Sprite  Dasani  Barq's  Dannon  Nestea  Rockstar  Evian  Fanta  Fresca  Minute Maid  Mr. Pibb  Powerade  Seagrams Ginger Ale & Mixers  TAB
  51. 51. Pepsi-co  Aquafina  Pepsi  Mountain Dew  Sierra Mist  Sobe  Lipton Brisk Tea  MUG Root Beer  Slice  Gatorade  Dole Juice  Tropicana
  52. 52. Cadbury  Canada Dry  Clamato  Dr Pepper  Hawaiian Punch  Mott's  Orangina  Snapple
  53. 53. Toyota  Toyota  Scion  Lexus
  54. 54. Chrysler  Chrysler  Jeep  Dodge
  55. 55. General Motors  Chevrolet  Buick  Pontiac  GMC  Saturn  Hummer  SAAB  Cadillac
  56. 56. Classifying oligopoly situation:  On basis of product differentiation:  Entry of firm.  Price leadership.  Agreement between the firms.
  57. 57. Kinds of Market Structure Types of Market Seller Entry Barrie rs Seller Number Buyer Entry Barrier s Buyer Numbers Product type Price Perfect Competition No Many No Many Homogeneous Uniform Monopoly (Pure) Yes One No Many Homogeneous Uniform Monopoly (Discriminating ) Yes One No Many Differentiated Differentiated Monopsony No Many Yes One Homogeneous Lowest possible price Monopolistic Competition No Many No Many Differentiated Differentiated Oligopoly Yes Few No Many Homogeneous or Differentiated High Duopoly Yes Two No Many Homogeneous or Differentiated High
  58. 58. CONCLUSION Market Structure Seller Entry Barriers Seller Number Buyer Entry Barriers Buyer Number Perfect Competition No Many No Many Monopolistic competition No Many No Many Oligopoly Yes Few No Many Oligopsony No Many Yes Few Monopoly Yes One No Many Monopsony No Many Yes One