Market Structure

&
Pricing Decision

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Market structure and degree of competition

Q. What is a market?

Market = buyers + sellers + commodity

Local, regional, national, international

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Market structure and degree of competition

HOW IS THE PRICE OF A COMMODITY

DETERMINED IN DIFFERENT KINDS OF

MARKETS?

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Market structure and degree of competition

No. of buyers is generally larger than the no.

of sellers
It is the no. of sellers in a market that
determines the nature and degree of
competition in the market
*nature and degree of competition make the
structure of the market
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 Types of Market Structure

Market structure No. of firms & degree of Nature of industry Control over Method of
product differentiation where prevalent price marketing
1. Perfect Large no. of firms with Financial markets None Market
competition homogeneous products and some farm exchange or
product auction
2. Imperfect
competition
(a) Monopolistic Many firms with real or Manufacturing: Some Competitive
competition perceived product tea, toothpastes, advertising,
differentiation TV sets, shoes, quality rivalry
refrigerators, etc.

(b) Oligopoly Few sellers, Steel, cigarette, Some Competitive

Little or no product cars, etc. advertising,
differentiation quality rivalry
(c) Monopoly A single producer, Public utilities: Considerable Promotional
without close substitute telephones, but usually advertising if
electricity, etc. regulated supply is large

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 Market structure & pricing decision

Market structure determines a firms

power to FIX the price
Degree of competition determines a firms
degree of freedom in determining the price
0 degree of competition 1
1 degree of freedom none
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higher the degree of competition, lower the firms
degree of freedom in pricing decision and control
over the price of its own product

Q. HOW DOES THE DEGREE OF COMPETITION

AFFECT PRICING DECISIONS IN DIFFERENT KINDS
OF MARKET STRUCTURES?

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 1. Perfect Competition

Large no. of firms compete against each other

Degree of competition 1
Firms discretion in price none
* price is determined by the market forces of
demand and supply
Q. What happens in case of a firm fixing the
price (a) above (b) below the market price?
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 2. Monopolistic Competition

lesser degree of competition than perfect

competition
firms have SOME discretion in pricing
degree of freedom depends largely on no.
of firms & level of product differentiation
product differentiation - firms
discretion & control over the price
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 3. Oligopoly

Degree of competition is quite low, lower

than monopolistic competition
Good deal of discretion and control over
pricing, especially where product
differentiation is prominent
*fewness of firms cartel, collusion

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 4. Monopoly

Degree of competition 0
Almost full control over the price

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Theory of pricing explains pricing decisions

and pricing behaviour of the firms in

different kinds of market structures

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