1. UNIT IIIUNIT III
PART-IPART-I
INTRODUCTION TOINTRODUCTION TO
MARKET STRUCTURESMARKET STRUCTURES
ANDAND
PRICING POLICIESPRICING POLICIES

2. What is a Market?
Market is defined as a place or point at
which buyers and sellers negotiate their
exchange of well-defined products or
services.
Market is a place where buyer and seller
meet, goods and services are offered for
the sale and transfer of ownership occurs

3. Definition of Market
Market is any area over which buyers and
sellers are in close touch with one another,
either directly or through dealers, that the
price obtainable in one part of the market
affects the prices paid in other parts.
- Benham

4. COMPONENTS AND MARKET
STRUCTURE
As seen from the definition of market, the
components of a market are:
1. Sellers (Producer)
2. Buyers (Customers)
3. Nature of product (Types of Product)
4. Conditions of entry and exit
5. Negotiation (Price)
6. Transfer of Ownership and Product
7. Transfer of Money or Equal Value

5. COMPETITIVE BASED MARKET
STRUCTURE
The less the power an individual firm has
to influence the market in which it operates,
the more competitive that market is.
Types of Competition
I. Perfect Competition Markets
II. Imperfect Competition Markets

6. Market Structures Based on
Competition

7. PERFECT COMPETITION
MARKET
A market structure in which all firms in an
industry are price takers and in which
there is freedom of entry into and exit
from the industry is called Perfect
Competition.

8. FEATURES OF
PERFECT COMPETITON MARKET
• A Large Number of Buyers and Sellers
• Price Taker (market price)
• Homogeneous Products (same product)
• The firms are Free to Entry or Exit
• No Individual Preferences (buyer/seller)
• Each buyer and seller operates under the
conditions of certainty
• Mobility of Factors of Production – move
freely from industry to industry and firm
to firm

9. IMPERFECT COMPETITION
1. Monopoly Market
2. Monopolistic Market
3. Duopoly Market
4. Oligopoly Market
5. Monopsony Market
6. Duopsony Market
7. Oligopsony Market

10. MONOPOLY
A pure monopoly exists if one and only one
firm produces and sells a particular
commodity in the market.
The single firm producing the product is
itself both the firm and the industry.
E.g.: Railways, Nokia, DOT, APSRTC

11. FEATURES OF MONOPOLY
COMPETITIVE MARKET
• Only one firm sells the commodity having
no rivals or direct competition
• Price Maker
• Indirect rivalry may exist in the form of
Existence of substitute products
• No other seller can enter the market, else
monopoly would cease to exist.
• The product is distinct i.e., inelastic
demand

12. CAUSES OF MONOPOLY
 Patent Rights give legal monopoly
 Govt. policies such as granting licenses
 Ownership and control of some strategic
raw materials.
 Exclusive knowledge of technology by the
firm.
 Size of the market may accommodate only a
single firm
 Limit pricing policy adopted to prevent new
entrants.

13. “which represents a more realistic picture of the
actual market structure and the nature of competition
which is existing right now in the market”
“which represents a more realistic picture of the
actual market structure and the nature of competition
which is existing right now in the market”

14. MONOPOLISTIC COMPETITION
Monopolistic Competition refers to a
situation where there are many sellers of a
differentiated product.
There is competition which is not perfect,
between many firms making very similar
products which are close but not perfect
substitutes.
Monopolistic market exhibits characteristic
of both perfect competition and monopoly

15. FEATURES OF MONOPOLISTIC
COMPETITION
1. Large number of sellers/producers
2. Large number of buyers
3. Product Differentiation (Tooth paste)
4. Higher selling cost (Promotion cost)
5. Imperfect knowledge (Buyers)
6. Freedom of entry and exist
7. Higher elasticity of demand. (Price
sensitivity market)

16. DUOPOLY
If there are two sellers, duopoly is said to
exist.
OLIGOPOLY
If there is a competition among a few sellers,
oligopoly is said to exist

17. MONOPSONY
If there is only one buyer, monopsony
market is said to exist.
DUOPSONY
If there are two buyers, duopsony is said
to exist.
OLIGOPSONY
If there are few buyers, oligopsony is
said to exist.

18. S.NO. TYPES OF
MARKETS
SIZE OF
SELLERS
SIZE OF
BUYERS
EXAMPLES
1 Monopoly Single
Seller
Large
Buyers
Ex: Indian
Railways, DRDO
2 Duopoly Two
Sellers
Large
Buyers
Ex: Soft drinks:
Pepsi & Coke
3 Oligopoly Few
Sellers
Large
Buyers
Ex: LPG Gas,
Cement Market,
Pizza Market
4 Monopsony Large
Sellers
Single
Buyer
Ex: Government
Contractors
5 Duopsony Large
Sellers
Two
Buyers
Ex: Petrol Buyers
in India: HPCL
and BPCL
6 Oligopsony Large
Sellers
Few
Buyers
Ex.: International
Airways

19. TR, AR and MR
Total Revenue is the revenue earned by
producing and selling ‘n’ units TR = P * Q
Average Revenue is the revenue earned per
unit sold AR = TR / Q
Marginal Revenue is the change in revenue by
producing and selling one more unit MR = P

20. PRICE SUPPLY EQUILIBRIUM
 Very Short Period Equilibrium
 Short run Equilibrium
 Long run Equilibrium

21. EQUILIBRIUM POINT
Equilibrium point refers to the position
where the firm enjoys maximum profits and
it has no incentive either to reduce or increase
its output level.

22. EQUILIBRIUM POINT – PERFECT
COMPETITION
MR = MC
MC curve should cut the MR curve from
below

23. EQUILIBRIUM POINT – PERFECT
COMPETITION (SHORT RUN)

24. SHORT RUN SUPPLY CURVE
AR = MR

25. PRICE OUTPUT
DETERMINATION IN CASE OF
LONG RUN UNDER PERFECT
COMPETITION

26. MR AND AR IN MONOPOLY

27. EQUILIBRIUM POINT – MONOPOLY
MR = MC
MC curve should cut the MR curve from
below

28. PRICE OUTPUT
DETERMINATION UNDER
MONOPOLY

29. IS MONOLPOLY SOCIALLY
DESIRABLE?
NO, the reasons are:
 Restrict the output
 Exploitation of consumers
 Wide gap between rich and poor
 Unfair trade practices
 Restricted scope to R&D

30. EQUILIBRIUM POINT –
MONOPOLISTIC
MR = MC
MC curve should cut the MR curve from below
AR = AC

31. PRICE OUTPUT
DETERMINATION UNDER
MONOPOLISTIC

32. PRICE DISCRIMINATION
When a firm sells its products to its
customers of different profile at different
prices with no corresponding change in
cost, price discrimination is said to exist.
1. Purchasing power
2. Quantity bought
3. Customers from different market conditions

33. ADVANTAGES OF PRICE
DISCRIMINATION
• Helps to meet the competition
• Surplus production can be disposed off
• Customer base increases
• Production costs decreases as volume increases
• Long run profits

34. PRICING
There are no cut and dried rules for
pricing, since each firm, product and market
situation have some features that are
unique.
Under pricing will result in losses and
over pricing will make the customers run
away.

35. PRICING OBJECTIVES
• Maximize profits
• Increase sales
• Increase market share
• Satisfy customers
• Meet the competition

36. PRICING METHODS
 Cost Based Pricing Methods
 Cost plus pricing
 Marginal cost pricing
 Competition Oriented Pricing
 Sealed bid pricing
 Going rate pricing
 Demand Oriented Pricing
 Price Discrimination
 Perceived value pricing

37. PRICING METHODS
 Strategy Based Pricing Methods
 Market Skimming
 Market Penetration
 Two part pricing
 Block pricing
 Commodity Bundling
 Peak load pricing
 Cross Subsidisation
 Transfer pricing

38. PRICING STRATEGIES IN THE
CASE OF STIFF PRICE
COMPETITION
 Price Matching
 Promoting Brand loyalty
 Time to time pricing
 Promotional pricing
 Target pricing