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³ Market is a set of conditions through which buyers

and sellers come in contact with each other for the
purpose of exchange of goods and services for
value.´
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 àocal Market
- Regional Market
- National Market
- International Market
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- Spot Market
- Future Market
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- Very short period Market
- Short period Market
- àong period Market
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- Primary Market
- Secondary Market
- Terminal Market
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- Regulated Markets
- Unregulated Markets
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- According to Marshallian theory of value, the forces of
demand and supply determine the price. The position of
supply is greatly influenced by the element of time.
Supply is to be adjusted in relation to changing demand in
the view of the time span given for such adjustments.

r     ‰ Market period is a very short

period during which it is practically impossible to alter
output or increase the stock. Thus the supply of the
commodity tends to be perfectly inelastic.
r       Short period is that period during
which supply of the commodity can be changed to
some extent though scale of production remains
unchanged. Here supply curve is elastic to some
extent.
r à     ‰ àong period is sufficient time
period during which the firms can change the scale of
production to match the changing demands. Thus
supply curve becomes perfectly elastic in the long run

 

     
         

      
   
 
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- Pure and perfect competition
- Monopoly
- Duopoly
- Oligopoly
- Monopolistic



 


 


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- àarge number of sellers
- àarge number of buyers
- Product homogeneity
- Free entry and exit of firms
- Perfect knowledge of market conditions
- Perfect mobility of factors of production
- Government non-intervention
- Absence of transport cost element
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It is more a matter of degree than of kind. For a market to
be purely competitive four fundamental conditions must
prevail (first four conditions in the list). For perfect
competition four additional conditions must be fulfilled
(next four in the list).
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 'nder perfect competition there is a ruling market price
determined by the interaction of forces of total demand and
total supply in the market.
- Both buyers and sellers are price takers and not the prices
makers.
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Assuming that firms always attempt to maximise
profits, basic economic theory provides a framework
for determination of price. The rationale to this theory is
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In other words the firm continues to increase output
until marginal revenue (MR) is larger than marginal
cost (MC). Thus the firm is in equilibrium only when
MR = MC
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 - It is the minimum profit just sufficient
to keep the entrepreneur in that business. It is the
opportunity cost of entrepreneurship. As it is the factor
cost of entrepreneurship, it is included in the cost
curve itself. So when the firm¶s revenue is equal to
cost, it is earning the normal profit.

r  


 Revenue over and above the
cost indicates the super-normal profit.
r At the given price the firm may or may not be able to
attain the super- normal profit, depending on its short
run cost function.
- When the AR>AC, there is super-normal profit
- When AR=AC, normal profit is yielded
- When AR<AC, àosses occur.

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In the long run the firms under perfect competition will
be able to earn normal profits only, given the free entry
and exit of firms.
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Monopoly is a well defined market structure where there
is only one seller who controls the entire market supply, as
there are no close substitutes for that product.
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- Monopolist is the single producer of the product in the
market
- under monopoly firm and industry are identical
- No close competitive substitutes
- It¶s a complete negation of competition
- A monopolist is a price maker and not a price taker.
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- Natural factors
- Control of raw material
- àegal restrictions
- Economies of large scale production
- Business Reputation
- Business combines
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The monopolist can control both price and supply of the
product. But at any point of time she can fix only one of
them. Either she can fix the quantity of output and let the
market demand determine the price of the product; or she
can fix the price of the product and let the market demand
determine the quantity which she can sell at the given
price.
Having profit maximising objective, she adopts the
rationale of equating MC with MR and fixes the level of
output which gives her the maximum profits or where the
losses are minimum. Thus when equilibrium output is
decided, the price is automatically determined in relation
to the demand for the product.
A monopolist may be earning profits or incur losses in
the short run.
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- It is not the highest possible price.
- This price does not bring the highest average profit to the
seller
- Monopoly price is often associated with the output, the
AC of which is still falling.
- Under perfect competition, the price charged is equal to
MC but in monopoly the price is above MC.

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Price discrimination implies the act of selling the output
of the same product at different prices in different markets

 different buyers.
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- Personal discrimination
- Age discrimination
- Sex discrimination
- àocational or territorial discrimination
- Size discrimination
- Use discrimination
- Time discrimination
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- To maximise the profits.
- To convert the consumers¶ surplus into producer¶s profit.
- To capture new markets.
- To keep hold on export markets.
- To exploit the unutilised capacity by widening the size of
market through price discrimination.
- To clear off surplus stock.
- To augment future sales by quoting lower rates at present
to the potential buyers who may develop the taste for the
product in future.
- To weed out the potential competition from the market or
destroy a rival firm.
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- Separate markets
- Apparent product differentiation
- Prevention of re-exchange of goods
- Non-transferability nature of product
- àet go attitude of buyers
- àegal sanctions
- Buyer¶s illusion
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Even though circumstances are favourable to practice price
discrimination, it may not always be profitable. It is profitable only
when the following two conditions are prevailing.
- Elasticity of demand differs in each market
- The cost-differential of supplying output to different markets should
not be large in relation to the price differential based on elasticity
differential.
If the seller faces iso-elastic curves in two markets, the price
discrimination will not be profitable, as the AR and MR of those two
markets will also be equal in that case. Hence if any amount of output
transferred from one market to the other and different prices are
charged, the gains realised in one market is lost in the other.
MR = P [e-1/ e ]
When the monopolist considers separate markets, he takes the combined
marginal revenue (™ MR) by aggregating the MR of different markets
and distributes equilibrium total output in different markets so that
marginal revenues in each market are the same.
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³Dumping is the act of selling a good abroad at a price lower than the
selling price of the same good at the same time and in the same
circumstances at home, taking account of differences in the transport
cost´
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³ Monopolistic competition is defined as a market setting in which a large
number of sellers sell differentiated products´
³ Monopolistic competition is a market situation in which there is keen
competition, but neither perfect nor pure, among a group of large number
of small producers or suppliers having some degree of monopoly power
because of their differential products´ ‰ Prof. E.H. Chamberlin
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- àarge number of sellers
- àarge number of buyers
- Free entry & exit
- Product differentiation
- Two dimensional Competition
- Selling cost
- The group
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- Monopolistic demand curve (AR) is more elastic than monopoly.
- If the group consists less number of firms and great
product differentiation, then the elasticity is comparatively less.
- If the group consists of large number of firms and the product
differentiation is weak, then the elasticity is comparatively more.
- The extent of monopoly power of the firms on the basis of
differentiation and the resultant elasticity of demand decides the super
normal profits of the firms in short run.
- The firms under monopolistic competition normally earn only normal
profits in the long run.
- Some firms may earn super normal profits even in the long run with
high product differentiation / good will etc.
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- Product differentiation may broadly be defined as anything that causes
buyer to prefer one product to another. Therefore, in the real sense,
product differentiation exists in the mind of consumer. That is it is not
necessary for the difference to be real-it is only necessary for the
consumer to think it is real.( The role of advertising and brand name )
- The real differentiation among products may arise due to :
r Patents, trademarks and copy rights
r Differences in colour and packaging
r Conditions relating to sale of the product
r Method, time and cost of delivery
r Availability of service
r Guarantees and warranties
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l Expenditure incurred by a firm on advertising and sale promotion of
its products is known as selling cost¶. It includes,
r Advertising and publicity expenditure of all sorts
r Expenses of sales department viz, commission and salaries of sales
staff
r Margin granted to dealers
r Expenditure for window display, demonstration of goods, free
distribution of samples etc.
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³ Oligopoly is defined as a market structure in which there are few
sellers selling a homogeneous product or differentiated products´.
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- Pure or homogeneous oligopoly
- Differentiated or heterogeneous oligopoly
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- Huge capital investment
- Economies of scale
- Patent rights
- Control over certain raw materials
- Mergers and takeovers
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- Small number of sellers
- Interdependence of decision making
- Barriers to entry
- Huge cost
- Economies of scale
- àoyalty
- Price rigidity
- Indeterminate price
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- Why price stays stable?
- Three possible ways of rival firms reaction to the price changes
r Rival firms follow the price changes both cut and hike
r Rival firms do not follow the price changes
r Rival firms follow the price cuts but not the price hikes
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A firm may become price leader formally or informally
- Formal price leadership- Out of tacit or explicit agreement

- Informal price leadership

r Price leadership by a low cost firm
r Price leadership by a dominant firm - Assumption ‰ There exists a
large firm in the industry which supplies a large proportion of the total
market supply
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- Barometric price leadership ‰ A firm ( not necessarily the dominant
firm ) taking lead in price change ( which is due but not effected due
to uncertainty in the market ).
- Ability to forecast the market conditions more accurately
- A firm initiates a well publicized changes in the price which are
generally followed by rival firms. Such firm need not be the largest or
low cost firm in the industry but should have the better knowledge of
the prevailing market conditions and ability to predict them more
precisely.
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- Rivalry between large firm leading to cut-throat competition to the
disadvantage of all the firms make them unacceptable.
- àack of capacity and desire to make continuous calculations of cost,
demand and supply conditions on the part of many firms.
- As a reaction to the long term economic welfare.
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- Number of firms is small.
- Entry of new firms restricted.
- Products are by-n-large homogeneous.
- Demand for the industry is less elastic.
- Firms have almost similar cost curves.
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- Product differentiation - Advertisements
- Collusion model : The cartel
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Duopoly is a limiting case of oligopoly. It is a market structure
assuming only two sellers selling identical products in the market



 

 



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- Full-cost / Mark up pricing /Average cost pricing
- Marginal cost pricing

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- Pricing of a new product
> Skimming price
> Penetration price
- Pricing in maturity stage
- Pricing in decline stage
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- Rate of return pricing
- Going rate pricing
> Pricing below market price
> Pricing above market price
> Pricing at market price
- Peak load pricing & Double pricing
- Value pricing
- Prestige pricing & Psychological pricing
- Multiple product pricing
- àoss leader pricing
- Administered prices
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