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Price Discrimination

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  The monopolist often charges different prices from different consumers for the same product. This practice of charging different prices for identical product is called price discrimination. According to Robinson, “Price discrimination is charging different prices for the same product or same price for the differentiated product.” Types of Price Discrimination : Price discrimination is a common pricing strategy’ used by a monopolist having discretionary pricing power. This strategy is practiced by the monopolist to gain market advantage or to capture market position. There are three types of price discrimination, which are shown in Figure-13: The different types of price discrimination (as shown in Figure-13) are explained as follows: i. Personal: Refers to price discrimination when different prices are charged from different individuals. The different prices are charged according to the level of income of consumers as well as their willingness to purchase a product. For example, a do
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Monopoly Market

  A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. The word monopoly has been derived from the combination of two words i.e., ‘Mono’ and ‘Poly’. Mono refers to a single and poly to control. “Monopoly is a market situation in which there is a single seller. There are no close substitutes of the commodity it produces, there are barriers to entry”. -Koutsoyiannis Features : We may state the features of monopoly as: 1. One Seller and Large Number of Buyers: The monopolist’s firm is the only firm; it is an industry. But the number of buyers is assumed to be large. 2. No Close Substitutes: There shall not be any close substitutes for the product sold by the monopolist. The cross elasticity of demand between the product of the monopolist and others must be negligible or zero. 3. Difficulty of Entry of New Firms: There are either natural
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Monopolistic Competition

  Monopolistic Competition refers to the market situation in which there is a keen competition, but neither perfect nor pure, among a group of a large number of small producers or suppliers having some degree of monopoly because of the differentiation of their products. Thus, we can say that monopolistic competition (or imperfect competition) is a mixture of competition and a certain degree of monopoly, on the basis of a correct appraisal of the market situation. According to Prof. Lerner –   “The condition of imperfect competition arises when a seller has to face the falling demand curve.” Characteristics Important characteristics of monopolistic competition are as follows: 1.  Less Number of Buyers and Sellers: In this market neither buyers nor sellers are too many as under perfect competition nor there is only one seller as under monopoly. Mostly, it is a situation in between. Every producer for his produced commodity has some special buyers. Every consumer and seller can influence
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Shut Down Point

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  Under perfect competition, a firm is a price taker i.e. the price is given to the firm. In the market, the price is determined by the forces of demand and supply. Given the price the firm can maximize supernormal profits, break even, minimise losses or shut down. Thus, shut down point occurs when the price is so low that it cannot pay the fixed costs. The losses are incurred and are equal to fixed costs. The price covers the AVC. There are two shut down situations as: 1. When the firm decides to shut down. 2. When the firm actually shuts down. 1st Case: When the Firm Decides to Shut Down This situation occurs when the price line passes through the minimum point of the AVC curve. It is shown in figure 13. In this diagram, we see that at price OP, equilibrium is at point E where MR = MC. The slope of MC is greater than zero. The firm sells OX units of output. The loss in this situation is calculated as: Loss per unit = Cost per unit – Revenue per unit = CX – EX = CE Total Losses = Loss
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Pure Competition

  Pure Competition is said to exist when the following two conditions are fulfilled: (i) Large Number of Buyers and Sellers : The first condition is that there should be operating in the market a large number of buyers and sellers. If that is so, no single producer or purchaser will be able to influence the market price by varying respectively his supply or demand. The output of any single firm is only a small portion of the total output and the demand of any single purchaser is only a small portion of the total demand. Hence, the market price has to be taken as given and unalterable by every purchaser and seller.  (ii) Homogeneous Product: The second condition is that the articles produced by all firms should be standardised or identical. This condition ensures that the same price rules in the market for the same commodity. In case the output is not standardised (i.e., it is differentiated), each individual firm will be in a position to influence the market price. If the above two con
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Perfect Competition

  INTRODUCTION A Perfect Competition market is that type of market in which the number of buyers and sellers is very large, all are engaged in buying and selling a homogeneous product without any artificial restrictions and possessing perfect knowledge of the market at a time. In this connection Mrs. Joan Robinson has said —”Perfect Competition prevails when the demand for the output of each producer is perfectly elastic.” FEATURES 1.  Large Number of Buyers and Sellers:  The first condition is that the number of buyers and sellers must be so large that none of them individually is in a position to influence the price and output of the industry as a whole. 2.  Homogeneity of the Product: Each firm should produce and sell a homogeneous product so that no buyer has any preference for the product of any individual seller over others. If goods will be homogeneous then price will also be uniform everywhere. 3.  Free Entry and Exit of Firms: The firm should be free to enter or leave the firm
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