PRICING IN DIFFERENT MARKETS

A POWERPOINT PRESENTATION ON PRICING IN DIFFERENT MARKETS
PERFECT COMPETITION
MONOPOLISTIC COMPETITION
MONOPOLY
OLIGOPOLY

PRICING POLICIES AND PRICING OF A NEW PRODUCT

1. PRINCIPLES OF BUSINESS DECISIONS SUBMITTED BY, ABHIRAMI GANGADHARAN VARSHA CJ MARIA JOY MENACHERY KRISHNAPRIYA HARI V STUDENTS,FINANCE AND TAXATION DEPARTMENT, BHARATA MATA COLLEGE , THRIKKAKARA ,KOCHI .

2. PRICING IN DIFFERENT MARKETS

3. INTRODUCTION PERFECT COMPETITION FEATURES PURE COMPETITION &PERFECT COMPETITION –COMPARISION CONCEPT OF EQUILIBRIUM PRICE PRICE DETERMINATION UNDER PERFECT COMPETITION EQULIBRIUM OF A FIRM UNDER PERFECT COMPETITION IMPERFECT COMPETITION MONOPOLY FEATURES KINDS SOURCES PRICE AND OUTPUT DETERMINATION UNDER MONOPOLY LONG RUN MONOPOLY EQUILIBRIUM PRICE DISCRIMINATION OBJECTIVES CONDITIONS CONTENT

4. MONOPOLISTIC COMPETITION FEATURES PRICE DETERMINATION UNDER MONOPOLISTIC COMPETITION OLIGOPOLY FEATURES PRICE AND OUTPUT DETERMINATION UNDER OLIGOPOLY KINKED DEMAND CURVE THEORY PRICE LEADERSHIP MODEL TYPES DUOPOLY MONOPSONY BILATERAL MONOPSONY OLIGOPSONY PRICING POLICIES PRICING STRATEGIES AT DIFFERENT STAGES PROBLEMS IN PRICING OF A NEW PRODUCT

5. The environment in which a product or service is sold has a great effect on the available options for the buyer and seller. We will now go through different markets. Based on their characteristics, pricing in different markets can be divided into the following groups: perfect competition monopolistic competition oligopoly monopoly INTRODUCTION

6. The situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers . PERFECT COMPETITION

7. LARGE NUMBER OF BUYERS AND SELLERS IDENTICAL PRODUCTS FREE ENTRY OR EXIT OF FIRMS BUYERS & SELLERS HAVE PERFECT KNOWLEDGE PERFECT MOBILITY OF FACTORS OF PRODUCTION ASSUMPTION OF NO TRANSPORT COST FEATURES OF PERFECT COMPETITION

8. Pure competition exists when the first 3 conditions such as existence of large no. of buyers & sellers ,identical products ,free entry or exit of firms are fulfilled. Perfect competition is much broader than pure competition with additional conditions as stated earlier. PURE COMPETITION &PERFECT COMPETITION -COMPARISION

9. It is clear from the table that qty demanded and supplied is equal at price Rs 3. All other levels of prices, the qty demanded and supplied are not equal. Hence the equilibrium price is RS 3. CONCEPT OF EQUILIBRIUM PRICE

10. Price determination in market period PERISHABLE GOODS NON – PERISHABLE GOODS Price determination in the short period Price determination in long period PRICE DETERMINATION UNDER PERFECT COMPETITION

11. EQULIBRIUM OF A FIRM UNDER PERFECT COMPETITION

12. Market conditions where individual firms can exercise control over the price in varying degrees depending upon the degrees of imperfect competition prevailing in the market. IMPERFECT COMPETITION

13. Monopoly refers to a market situation where one firm or a group of firms which are combined to have a control over the supply of the product. The product has no close substitutes. The cross elasticity of demand with every other product is very low. This means that no other firms produce a similar product. Thus, the Monopoly firm is itself an industry and the monopolist faces the industry demand curve . MONOPOLY

14. Single Producer or Seller Absence of Close Substitutes Barriers to the Entry of New Firm The firm is the price-maker and not price taker i.e., the firm can sell more at lower price and less at higher price. Monopolist is guided by the motive of profit maximisation . The monopoly price is uncontrolled. There are no restrictions on the power of the monopolist. FEATURES OF MONOPOLY

15. PERFECT-No close substitutes IMPERFECT-There are close substitutes PRIVATE-Owned by private PUBLIC-Owned by government SIMPLE-Uniform price DISCRIMINATING-Different price LEGAL- Trademarks, patents etc NATURAL-As a result of natural advantages TECHNICAL-Through invention JOINT-Through amalgamation , cartels etc KINDS OF MONOPOLY

16. Economies of large scale production Economies of scope Exclusive ownership of raw materials Patent laws SOURCES OF MONOPOLY

17. SHORT RUN A Firm’s Short-Run Equilibrium in Monopoly Like in perfect competition, there are three possibilities for a firm’s Equilibrium in Monopoly. These are: The firm earns normal profits – If the average cost = the average revenue It earns super-normal profits – If the average cost < the average revenue It incurs losses – If the average cost > the average revenue PRICE AND OUTPUT DETERMINATION UNDER MONOPOLY

18. In the figure above, you can see that the price per unit = OP = QA. Also, the cost per unit = OP’. Therefore, the firm is earning more and incurring a lesser cost. In this case, the per unit profit is OP – OP’ = PP’ Also, the total profit earned by the monopolist is PP’BA.

19. A monopoly firm maximizes profit at a higher level of output in the long run as compared to short run. This is because in the long run he can make adjustment in the size of the plant . LONG RUN MONOPOLY EQUILIBRIUM

20. It is the practice of charging different prices for the same product from different buyers. TYPES Personal Local According to use PRICE DISCRIMINATION

21. To maximize profit To sell off accumulated inventories To penetrate into a new market segment. To take advantage of the economies of large scale production. To enter into or retain export markets. OBJECTIVES OF PRICE DISCRIMINATION

22. Works under monopoly only Division of market into sub market Transfer of goods Elasticity of demand Consumer prejudices Government regulations Duty and tariff barriers CONDITIONS FOR PRICE DISCRIMINATION

23. Monopolistic competition refers to a market situation in which there are many producers producing goods which are close substitutes of one another or where output is differentiated. MONOPOLISTIC COMPETITION

24. Presence of large number of sellers Product differentiation Independent price policy Non price competition Large number of buyers Free entry and exit Selling costs Absence of perfect knowledge The group concept FEATURES OF MONOPOLISTIC COMPETITION

25. SHORT RUN EQUILIBRIUM LONG RUN EQUILIBRIUM GROUP EQUILIBRIUM PRICE DETERMINATION UNDER MONOPOLISTIC COMPETITION

26. ➢ Type of imperfect competition. ➢ Market situation where there are a few firms or sellers selling either differentiated or homogenous product. ➢ The lower limit of oligopoly is duopoly which is a market situation consisting of two sellers. OLIGOPOLY

27. a ) Few sellers b) Mutual Interdependence c) Homogenous or differentiated products d) Indeterminate demand curve e) Advertising and selling cost f) Price stability FEATURES OF OLIGOPOLY

28. 1 ) The concept of Kinked demand curve 2) Price leadership model 3) Pricing under collusion PRICE AND OUTPUT DETERMINATION UNDER OLIGOPOLY

29. ➢ It was introduced by an American economist Paul M Sweezy . ➢ It explains the situation of price rigidity under oligopoly. ➢ The demand curve of an oligopolist firm has a ‘kink’ at the prevailing market price. ➢ The kink divides the demand curve into two parts. The upper portion is more elastic and the lower potion is less elastic. KINKED DEMAND CURVE THEORY

30. ➢ Price changes are consistently imitated by other firms in the industry. ➢ One firm emerges as a price leader and fixes the price of the product for the industry. The other firms will adjust their output to this price. ➢ The price leader will be the one who owns the largest market share or the one with the lowest cost of production. PRICE LEADERSHIP MODEL

31. Price leadership of the dominant firm Price leadership by a low cost firm Barometric price leadership Exploitative or aggressive price leadership TYPES OF PRICE LEADERSHIP

32. DUOPOLY Market situation in which there are only two sellers either selling identical or differentiated products. MONOPSONY Market situation where there is only one buyer in the market BILATERAL MONOPSONY Market situation when a monopoly of purchase is matched with a monopoly of sale.

33. Market situation characterised by the presence of many sellers and few buyers. General Considerations While Formulating A Price Policy Objectives of business Cost of the product Demand for the product Competition Channels of distribution Government legislations Business cycle OLIGOPSONY

34. Cost oriented pricing policy Cost plus pricing Rate of return pricing Break even pricing Demand oriented pricing policy Competition oriented pricing policy PRICING POLICIES

35. SKIMMING PRICING Skimming pricing is a pricing strategy where a high price is charged in the initial stages of the introduction of a product. PENETRATION PRICING Penetration pricing is a pricing strategy where a low price is charged in the initial stages of the introduction of a product.

36. Introduction stage Growth stage Maturity stage Decline stage PRICING STRATEGIES AT DIFFERENT STAGES

37. Lack of market information Lack of standards Heavy promotional expenses Fear of customer rejection Test Marketing Production Planning Estimation of cost of production PROBLEMS IN PRICING OF A NEW PRODUCT

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