Price And Non Price Competition And Elasticity Economics Essay

Price competition, which is where a company tries to separate its merchandise or service from viing merchandises on the footing of low monetary value. In this the house manipulates its monetary value so as to vie in the market. To be successful in the market, the cost of the merchandise should be lower than the others and for accomplishing that the company should be able to alter the monetary value of the merchandise.


There is more accent on the merchandise characteristics and besides the quality of the merchandise. In this the publicity of the merchandise should be such that the distinguishing of our merchandise is seeable and the clients are able to judge the difference in the merchandise. It involves promotional outgos like advertisement, particular offers, merchandise development etc. Firms prefer non-price competition in malice of all the promotional costs involved such as advertisement of merchandises, location convenience, gross revenues publicity of the merchandise, development of merchandise etc. because it is normally more profitable than selling for the low monetary value. It is more common in oligopolistic market and monopolistic competitory market because there can be immense competition in these competitory markets

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Monetary value Competition:

PERFECTLY COMPETITIVE Market: In this type of competitory selling, there are big Numberss of viing companies. There are so many purchasers and providers with no distinction of the merchandise in the market so the merchandise is same. The monetary values are non set by the houses but by the demand in the market of the merchandise. So in this, the existent end is to do as much net income as possible. They are the monetary value takers. This is in existent sense a rare phenomenon There is PERFECT MOBILITY OF FACTORS OF PRODUCTION i.e. factors of production are freely nomadic between the houses like Labour can travel from one house to another, there is no trade brotherhood, likewise capital can besides travel from one house to another and ENTRY is easy as there is no entry barrier for new houses nor is at that place any barrier for the houses who want to go out. A house may come in industry or discontinue it every bit good with its ain will which is why when houses in the industry make Supernormal PROFITS ( net income attained after all sorts of costs ) , new houses enter increasing the production of the homogenous merchandise, therefore extinguishing the net incomes in bend extinguishing the supranormal net incomes. So when the net incomes decrease the houses leave or issue. This is besides called ZERO PROFIT CONDITION

Monetary value: Since there are many houses selling the homogeneous merchandise in the market so the market portion of individual house is really little such that it can non impact the market monetary value by altering its supply so we can state that single house has no control on the market monetary value, alternatively the market monetary value is determined by the market demand and market supply. My monetary value is the same as demand is non increasing or diminishing so one will do measure Q1

The demand curve DD ‘ represents the market demand for the trade good and SS ‘ represents the supply created by all the houses of the industry. At this monetary value, a house can sell any measure which means that the demand curve for an single house is consecutive horizontal line as shown in the graph line dd1 with INFINITE ELASTICITY

The consecutive horizontal line implies that monetary value is equal to the fringy gross i.e AR=MR where it is the right monetary value to sell and the measure.So I will do measure Q because if I make more measure than that so my fringy cost will increase hence diminishing my net income.

The monetary value is determined by demand and supply in a absolutely competitory market at OP and therefore the monetary value peers fringy gross.At point E, hence SMC=MR. A perpendicular drawn from E to end product O determines end product OQ. At end product, house is in equilibrium and is doing maximal net income. Firm ‘s soap. net income is PEE’P ‘ which is PP’*OQ where PP ‘ is per unit SUPER NORMAL PROFIT at end product OQ.

Monopoly is the market where there is a individual marketer of the trade good and has the power to bring forth and sell a trade good. It is the exact antonym of the Perfectly Competitive Market but it besides faces competition from other monopoly houses and 2nd being presence of other inferior replacements which is why pure monopolies are barely found and in these there is no differentiation of house and the industry. A monopoly may raise its monetary value but it will lose gross revenues. In order to sell more, it must take down its monetary value.

In Monopoly, the demand curve is has a negative swill. Fringy gross curve is twice that of AR curve i.e. fringy gross curve is twice every bit steep as mean gross curve. If there is addition in monetary value, the demand decreases and vice-versa so it is ELASTIC. Demand is responsible for the gross earned. If the demand decreases so AR and MC decreases so my gross will besides diminish. If MR & lt ; AR so what measure do I do, it is where MC=MR but I will sell the merchandise at P because people are ready to purchase the trade good at that monetary value, so ML would be my normal net income and P’L would be the SUPERNORMAL Net income

It refers to a market in which big figure of Sellerss sell differentiated merchandises which act as close replacements for each other. It is a combination of both perfect competition and monopoly because there are many Sellerss in the market and monopoly because each house can bring forth its merchandise which the other houses can non copy. There is besides merchandise distinction in footings of size, coloring material, design, packaging, warrant etc. with the intent of doing consumers believe that the merchandise is different from the others There is outgo on the advertizements, strategies etc.

Demand leads to gross gaining so Demand=Average Revenue. The measure I need to do is Qm because there is where MR=MC and I could gain maximal gross. So I would sell my merchandise at monetary value Pm as people are willing to pay for the merchandise so the gray country Acts of the Apostless as the SUPERNORMAL Net income

Monetary value ; The houses have the power to put the monetary value of their merchandise

Entry: It is easy every bit good is the issue. Equally shortly as the houses start gaining net income, new houses enter taking to more production and less demand, therefore cut downing the net income border taking to drawing out of the houses which leads to increase in profit net incomes of the existing houses.

Elasticities: With merchandise distinction it is perceived by the house that the demand graph of their merchandise is more elastic than the other rivals in the market.The perceived demand curve is more elastic than the demand curve of the house.The footing of sensed demand curve is house ‘s belief that if it changes the monetary value of its merchandise, the other houses will non detect it as there are many houses present. The single house perceives that if it cuts its ain merchandise, it would travel unnoticed and demand for its merchandise would lift.If one house decreases it ‘s monetary value and others do non, the merchandise becomes cheaper and clients switch over to the merchandise with lower monetary value

Example: illustration is Clothing because

There are many houses competing for control of one market I: vitamin E vesture

Each house offers different assortments of the same merchandise

Close replacements of each vesture is sold by the rivals

Firms advertise their vesture so people buy them


It is the market where there are few Sellerss selling either same merchandise or differentiated merchandise. Firms selling same merchandise are called pure or homogeneous oligopoly like sugar and the 1s which are selling differentiated merchandises are called differentiated oligopoly like computing machines. In this Sellerss are less and the market portion of a house is big so a individual house has consequence on other rival houses as good. There is ever tough competition in footings of monetary value wars

Q2 Visit a local supermarket or departmental shop. Focus on the subdivision where shampoos are displayed for sale. Observe and analyze the infinite allocated to trade names, different trade names under the same company, pricing etc. Elaborate on economic constructs based on observation and acquisition?

The shampoo market in India has grown at a really fast gait in the recent old ages as more and more people have started utilizing shampoos.The entire shampoo market has grown to 930 Crores and is continuously turning. A survey shows that an Indian needs more shampoo ( 6ml ) in one hair wash as compared to 4ml used in western states because most Indian adult females have long hair which is why in most of the supermarkets and departmental shops shampoos act as a chief attractive force

Many companies are selling different shampoo trade names in India. Basically this market is segmented on benefit platforms. Peoples who like decorative shampoos like to utilize shampoos like Dove, Sunsilk, Pantene etc. but the people who like herbal shampoos can choose for Vatika, Himalaya or Ayur shampoos. There are besides anti dandruff shampoos nowadays in the market like Heads & A ; Shoulders etc.

With the sachet debut into the market, consumer trueness has farther come down as the sachet histories for 70 % of the market portion. In add-on to that rural India prefers purchasing sachet alternatively of the whole bottle

There are twosome of major large companies which are selling different viing trade names of shampoos like Hindustan Unilever Limited. HUL is selling Sunsilk, Dove, Clinic Plus and Clinic All Clear. PROCTER AND GAMBLE ( P & A ; G ) is selling Pantene and Heads & A ; Shoulders. L’Oreal has the shampoo Garnier. DABUR sells vatika. Himalaya is the merchandise of Himalaya Drug Company. Ayur shampoos are a merchandise of RDM bargainers Pvt. Ltd.

I visited Reliance departmental shop to analyze the infinite allocated to different shampoo trade names, different trade names under the same company etc

Layout: The shampoos were kept as per the planogram given to the departmental shop by the company. The shampoos were kept in a specific country on different shelves. The country is called bay country in which there are six shelves. The shelves are made maintaining into head the mean tallness of the Indians. The shampoos were kept on 4th, 5th and 6th shelves from below.

PRODUCT LINE: When offering merchandise line, companies develop different faculties which can be added so that they can run into the client needs or demands. Like the housewifes make a theoretical account foremost and demo it to the individual before doing the type of place which the individual needs, shampoo companies besides form the shampoos which can do the hair of the people better and therefore run intoing the client demands. The merchandises i.e. the shampoos nowadays were of HUL ( Hindustan Unilever Limited ) and P & A ; G i.e. Dove, Clinic Plus, Triss, Pantene, Sunsilk, Clear, Head and shoulders.

Pricing Scheme:

PRODUCT LINE Pricing: Companies develop merchandise lines therefore presenting difference monetary values for those merchandises like in the instance of shampoos different measures of shampoos are at that place with different monetary value like there are shampoo sachet, to 100 milliliter shampoos, 200 milliliter shampoos and 400 milliliter shampoo bottles and if different measures are given by the companies so the monetary value is besides different for all these hence clients have the pick to choose any shampoo of the same company holding different measures as a consequence usually clients tend to purchase the shampoo

PRODUCT BUNDLING Pricing: In this type of pricing scheme, Sellerss use bundling of the merchandise. Pure Bundling occurs when house offers its merchandise merely as a package like shampoo and a conditioner and in Mixed Bundling, marketer sells the merchandises both separately and in packages while making so usually bear downing less for the package than if those merchandises were purchased separately therefore bring oning the clients to purchase the merchandise

Merchandises are kept in Reliance departmental shop as per a PLANOGRAM sent by the company to the shops under which the trust company gives direction which merchandise should be kept where and on which shelf and how much infinite should be allotted to it which in fact depends on the demand of that merchandise

The shampoos are kept on different shelves i.e. on shelves 4th, 5th and 6th

Those shampoos are kept on the top shelve which is the 6th shelve which have high demand and therefore are kept in more visibility country like in this instance it was Dove shampoo and conditioner which are have high demand and the infinite allotted is four rows to the shampoo and the conditioner

On 5th shelve come the shampoos which have demand but less than the top shelve 1s like Clinic Plus, Pantene, Sunsilk, Garnier fructis although Triss may non hold that much demand.Pantene is allotted four rows, two rows are allotted to Sunsilk, two to Clinic Plus

Then comes the 4th shelve from underside which has Clear shampoo and Head and shoulders of which Head and Shoulders is allotted four row whereas two rows are allotted to Clear shampoo

There is competition between HUL ‘s DOVE and P & A ; G ‘s Pantene as their monetary values are the same

There is besides competition among HUL ‘s merchandises I.e. between Sunsilk, Dove, Clinic Plus etc. so increase in demand of one shampoo decreases the demand of the other one, so increase or diminish in demand of one shampoo has consequence on other shampoos as good



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