Professional Documents
Culture Documents
Decisions Under
Different Market
Structures
Market
Market is a system in which buyers and
sellers bargain for price of the product,
settle the price and transact their
business-buy and sell a product
Consumer Markets
A. Fast-moving consumer goods (FMCG's) News Papers
B. Consumer durables
i.
White
goods
(e.g.
fridge-freezers;
cookers;
dishwashers; microwaves)
ii. Brown goods (e.g. DVD players; games consoles;
personal computers)
iii. Soft goods - clothes, shoes
iv. Services - hairdressing, dentists, childcare
Industrial Markets
(Sale of Goods Between Businesses)
Selling
Finished
Goods
furniture,
computer
systems
Market Structure
Market Structure
Perfect Competition
Monopoly Competition
Monopolistic Competition
Oligopoly Competition
erfect
ompetition
Perfect Competition
The concept of Perfect Competition was
introduced by Dr. Alfred Marshall.
Sometimes
competition".
referred
to
as
"pure
Perfect Competition
Perfect degree of competition and single
price prevails
Characteristics of Perfect
Competition
Large number of Independent
sellers and buyers
Decision making
Homogeneous
Products
Perfect knowledge
Indifference among
Free entry and exit
the buyer towards
of firms
sellers
Perfect mobility of No Transport cost
factors
of
production
Price-taker not a PriceMaker
Perfect Competition
Perfect competition is a theoretical market structure.
Perfect Competition
Perfect Competition is an Unrealistic
phenomenon
Examples
Share market
Securities and bond market
Agricultural markets
Local Vegetable market
age
Nothing is 100% perfect in this world.
Price-Output Determination
Given
the
conditions
of
perfect
competition,
the
market
price
is
determined by the market forces (Market
demand and Market Supply)
The firm in a perfectly competitive market
is a Price-taker not a Price-Maker
MC = MR
MC curve must cut MR curve
from below
Price-Output Determination
Price-Output Determination is analyzed
under perfect competition in two time
periods
A. Short Run
B. Long Run
Loss
Normal Profit
Long-run Equilibrium
Monopoly
Monopoly
Monopoly is the anti-thesis of Competition
Efficiency
Patent over inventions
High cost of establishing an efficient plant
Characteristics of Monopoly
Single seller and a number of buyers
Absence of Competition
No close substitutes
Cross elasticity of demand is zero
Difficult to enter
Control over the supply of the commodity
Super
normal
Profit
Normal
Profit
Monopoly Equilibrium
(Supernormal Profit & Normal Profit)
Price Discrimination
seller price discriminates when it charges
different prices to different buyers.
discriminatory
attempts
to
take
pricing
away
the
that
entire
consumers surplus.
This is also known as TAKE-IT-ORLEAVE-IT
the
same
homogeneous
good
for
Monopolistic Competition
Monopolistic competition is a common market
form.
Monopolistic competition is a situation which
a large number of firms are offering similar
but not identical products.
Monopolistic Competition
Monopolistic Competition
Many
markets
can
be
considered
Characteristics of Monopolistic
Competition
Almost the same as in perfect competition,
with
the
exception
of
heterogeneous
products
Great deal of non-price competition (based
on slight product differentiation).
Characteristics of Monopolistic
Competition
Large number of sellers
Product differentiation
Non-price competition (More importance to Advertisements)
Free entry and exit
Independent behavior (independent pricing policy)
Producers have a degree of control over price
by
altering
the
rate
of
Loss
firm
economic profit
will
make
zero
Normal Profit
Oligopoly
Oligopoly
An oligopoly is a market form in which a market or
Unique Characteristics of An
oligopoly
Few Sellers ( to 5 to 10)
Lack of uniformity in the size of the firm
More importance for Advertisement and Selling cost
Uncertainty in the rival behavior
Duopoly
Duopoly
Monoposony
Monoposony
There is a single firm that buys
the entire market supply of an
output.
Bilateral Monopoly
Bilateral Monopoly
Oligoposony
Few firms purchase the entire market
supply
For example
Professional sports clubs
Pricing Objectives
The firm's pricing objectives must be identified in
order to determine the optimal pricing.
The pricing objective depends on many factors
including production cost, existence of
economies of scale, barriers to entry, product
differentiation, rate of product diffusion, the firm's
resources, and the product's anticipated
Pricing Objectives
Maximize quantity
Quality leadership
Survival
In situations such as market decline and
overcapacity, the goal may be to select a
price that will cover costs and permit the
firm to remain in the market.
In this case, survival may take a priority
over profits, so this objective is considered
temporary.
Price Stability
Skim pricing
It attempts to "skim the cream"
off the top of the market by setting a high
price and selling to those customers who
are less price sensitive.
Skimming is a strategy used to pursue the
objective of profit margin maximization.
Penetration pricing
Pricing Methods
Pricing Methods
Full cost pricing
Refusal Pricing
Cost-plus pricing
Peak-Load pricing
Value-based pricing
Charm pricing
Psychological pricing
Cyclical pricing
Loss-Leader Tactics
Pricing
Product-Tailoring
Resale Price maintenance
Going-Rate-Pricing
Establishing the price for a product
or service based on prevalent
market prices.
Cyclical Price
A single cycle has an upside during
which prices rise to a peak and a
downside when prices fall to a bottom
Product-Tailoring
Tailoring Products to Customer
Preferences
Economy Pricing
This is a no frills low price. The cost of marketing
and manufacture are kept at a minimum.
or service.
Promotional Pricing
Pricing to promote a product is a very
common application.
including
approaches
such
as
Geographical Pricing
Geographical pricing is evident where
there are variations in price in different
Value Pricing
This approach is used where external factors
such as recession or increased competition
Pricing Methods
Cost-plus pricing
set the price at the production cost plus a certain
profit margin.
Pricing Methods
Value-based pricing
based the price on the effective value to the
customer relative to alternative products.
Psychological pricing
base the price on factors such as signals of
product quality, popular price points, and what the
consumer perceives to be fair