CLASSIFICATION OF MARKET STRUTURE AND ITS IMPORTANCE
INTRODUCTION
In an economy, goods and services are produced for the ultimate satisfaction of the consumers. Therefore, all finished goods and services must be sold to the consumers. The process of exchange of these goods is essential. Thus, market is such a place where buyers and sellers gather in order to buy and sell a particular good or commodity. The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are not in direct competition with one another.
CLASSIFICATION OF MARKETS Generally, the determination of price and output depends on the type the market. In a market, the products are produced, sold and
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Under Perfect Competitionthe firm is in equilibrium at point M1, AR=MR=AC=MC. The equilibrium output is OQ2.
On the other hand monopoly firm is in equilibrium point at M where MC=MR.
The equilibrium output is OQ1. The monopoly output is lower than perfectly competitive firm output.
Price Discrimination
Price discrimination refers to the charging of different prices by the monopolist for the same product. He may charge different prices for different customers for the same product. Or in different markets, monopolist may charge differently.
Price discrimination is possible only when elasticity of demand will be different in different markets. Where demand is inelastic they will charge higher price, low price where demand is elastic. –In some cases discrimination is legally sanctioned, for example railways charges different rates for the transport of coal and copper.
MONOPOLISTIC COMPETITION
Monopolistic competition refers to a market situation where there are mny sellers of a commodity but the product of each seller is not identical. No seller can have any perceptible influence on the price output policies of the other seller nor can he be influenced by their action. For example, if we go to buy a tooth brush, we can choose from wide variety including rubber grip and plastic grip, diamond shaped and rectangle shaped, zig zag shaped and many others.
There are a large number of buyers and sellers. (buyers not
For example, If you are selling a product that is a normal good with a high rate of competition in the market, raising the price could have negative effects on overall profits because users will simply find another substitute somewhere. Charles stated that market separation may come into play when firms realize there are differing elasticity curves for different consumers of the same product. Firms can maximize profits by evaluating consumer segments within a single market. If the firm notices different demand elasticity for different segments it may opt to engage in price discrimination to maximize profits. Charles gave Microsoft Office as an example; the same software is offered to students, casual users and business users at different price
(7) A monopolist can discriminate prices for his product, a firm working under perfect competition cannot. The monopolist will be increasing his total profit by price discrimination if he find? Elastic ties of demand are different in different markets.
This is where industry regulations come. The regulations discourages the monopolies and oligopolies from charging unfair prices for their products.
Price discrimination is where a firm changes different consumers different prices for the same service.
Competition within the industry as well as market supply and demand conditions set the price of products sold.
there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand. Furthermore, for almost every product there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and the supplier have equal ability to influence price.
Colleges and Universities are involved in third-degree price discrimination defined as the difference of prices depending on the factors of gender, sex, geographical location and socioeconomic status.According to Boundless “Analysis of Price Discrimination” “Price discrimination exists within a market when the sales of identical goods or services are sold at different prices by the same provider. The goal of price discrimination is for the seller to make the most profit possible . Although the cost of producing the products is the same, the
Anyone who shops will encounter price discriminations whether realizing it or not because many department stores and food chains offer discounts to seniors, such as Marshalls and McDonalds. However, the discounts are not automatic; the discounts have to be asked for. Therefore, two people of the same age could purchase the same product, one after the other, and one could receive a discount and the other would not. Price discrimination can be described as identical goods or services being sold at different prices from one single provider (Sexton, 2013). In addition, three categories are provided in order to meet the qualifications of price discrimination, such as operating as a monopoly, providing that the same product or service is not sold by someone else. The organization must operate under the elasticities of demand, and the product or service must have stipulations in order to prevent resale.
Different market decisions determine how an economy is run. There are several different factors that account for how markets make their decisions, which determines how they function. The theory of markets mostly depends on supply and demand. However, it is key to note that there is a difference in demand/supply and quantity demanded/supplied. A demand is how much the buyer plans to purchase at various markets prices and the quantity demanded is what the buyer actually purchases at a particular price. Supply is the producer or the seller’s plan of the amount the seller will make available at different market prices and the quantity supplied is the actual amount that the seller makes available at a particular market price. It is important to
Within these categories, many sub-markets branch out. Competitive Markers are the most common, having many sellers providing similar products to many buyers. Competitive businesses make profit based off of the relationship between net and gross income, and depend on providing a more reasonable price than its competitor. This type of market is seen mainly with a capitalist economy. Monopolistic Markets are similar to Competitive, but they differ in the type of product. Monopolistic businesses provide differing items that all provide a common service. A Monopolistic business gains profit by providing a product that the same basic service as another business, but differs in small details that contour to different types of buyers. The auto industry, proving scooters, motorcycles, automobiles, and other forms of differing transportation is an example.
Price discrimination can be defined as when the same good or service is sold at different prices to different consumers. If we look at this definition of price discrimination, for an example, we can show that price discrimination can be seen in the entrance tickets of parks such as Universal studios; this is due to the fact that there are discounts for children and senior citizens. (Phlips L. , 1983) However, this can be seen as not being discriminative at all due to the fact that if the price difference full reflects the difference in the cost of carrying the good from the seller’s location to the buyers’ location.
Competition within the industry as well as market supply and demand conditions set the price of products sold.
This chapter sets out the rationale for price discrimination and discusses the two major forms of price discrimination. It then considers the welfare effects and antitrust implications of price discrimination.
Different market structures are basically compared by the number of competing firms and the extent of entry barriers.