Monetary value is a measure or compensation given from one party to another party in return for goods or services.
Monetary value competition
When there is competition in houses on the footing of alteration in monetary value, it is known as monetary value competition. Price competition can affect dismissing the monetary value of a merchandise ( or scope of merchandises ) to increase its demand. Assorted signifiers of market indulge in monetary value wars in order to gain a big market portion and a net income border. As monetary value of a merchandise increases or decreases, it leads to fluctuations in the demand of the merchandise of peculiar houses.
So all the houses ever keep a ticker on the market forces of demand and supply, the derived equilibrium monetary value, competition etc. in order to plane the market.
Non monetary value competition
When there is competition in houses on the footing of factors other than monetary value such as advertisement, gross revenues publicity, merchandise distinction, branding etc. , it is known as non-price competition.
Price competition vs. non-price competition
Monetary value CompetitionNon Price CompetitionCompetition between the houses based on monetary value where one house tries to crush or fit the monetary value of the other.Firm tries to be the lowest cost giver for the merchandise in the market.The house must hold the vision to react to the scheme of other steadfast really rapidly.High cross monetary value snap must see more of monetary value competition.
Here the houses compete with each other with the strong factors like merchandise distinction, quality of the merchandise etc.The house tries to construct consumer trueness so that it can sell its merchandise to the maximal figure of consumers and increase its market portion.They promote consciousness in the consumer for the distinction of their merchandise.High ain monetary value snap must see more non monetary value competition.
Consequence of monetary value on Quantity Demanded & A ; Quantity Supplied
An addition in monetary value has an opposite relationship with the measure demanded and a positive relationship with the measure supplied i.e.
an addition in monetary value decreased the demand and increases the measure supplied and frailty versa.
Determination of Equilibrium monetary value
The market forces of demand and supply determine the equilibrium monetary value. This equilibrium monetary value becomes the footing for houses in perfect or imperfect competition to bear down a monetary value for their merchandise. Thus the houses make a cost minimising production mapFigure 2: Equilibrium monetary value: Supply and Demand forcesSupply_curve_shiftIn the figure, equilibrium monetary value is p0 and equilibrium measure is QO i.
e. when measure demanded is equal to measure supplied equilibrium is achieved. These points merely show the equilibrium province but do non demo the response of the alteration of measure demanded and supplied with regard to monetary value.
Here comes the importance of snap of demand and supply.
Analysis OF DIFFERENT MARKET SITUATIONS WHICH GIVE RISE TO PRICE AND NON-PRICE COMPETITION
Elasticity and monetary value and non-price competition play a critical function in finding assorted signifiers of market construction, their monetary value, demand and supply, entire gross, form of the demand curve etc. the market construction can be delineated as follows:
Market StructureImperfect competitionMonopolyPerfect CompetitionMonopolisticOligopolyMarket is non simply a geographical look but it can be any topographic point where purchasers and Sellerss are in regular contact and they have a perfect cognition of monetary value.
BASIC FEATURES OF MARKETVery big figure of purchasers and Sellerss exist in a market.Both homogenous every bit good as heterogenous merchandises are available in a market.Free mobility ( motion ) of and services goods in a market country.Firms are free to come in and issue.Forms OF MarketPerfect competitionMonopolyMonopolisticOligopoly
Perfect competition is a market state of affairs where big figure of purchasers and Sellerss exist. In this market, house is a monetary value taker whereas Industry is the monetary value shaper.
FEATURES OF PERFECT COMPETITIONLarge figure of Sellerss and purchasers exist in perfect competition.Homogeneous merchandises are sold in this market where the monetary value may increase or diminish but for the whole industry otherwise it will be a given monetary value.In this market, monetary value remains unvarying for two groundsHomogeneous merchandisesPerfect competitionFirms are free to come in and issue.Price = mean gross = fringy gross because of monetary value uniformity.Price has no function to play due to homogenous goods. Monetary value remains unvarying but non changeless. Example – stock market. Non-price competition is non possible as the merchandises are homogenous, advertisement, publicity and stigmatization help the houses to distinguish and make niche in the market.
Figure 1.1-Price finding under perfect competition
It is a market state of affairs where a individual marketer exists with a big figure of purchasers and no close replacement is available of monopoly merchandise.FEATURES OF MONOPOLY MARKETSingle marketer exists in monopoly market with big figure of purchasers.
Close replacements are non available of the monopoly merchandises as it may work as an obstruction for the growing of the monopoly merchandise.Entry of new house is really hard in monopoly market. The bing monopoly power will take all legal every bit good as illegal constructs to halt the entry of new houses.Price favoritism is one of the most dramatic characteristics of a monopoly market. It may be defined as bear downing different monetary value from different clients for the same merchandise on the footing of sections of consumer, measure to be purchased and grades of snap of demand.Selling cost or cost of advertizement is negligible.
Demand curve confronting a monopoly house is downward inclining but less elastic and MR is ever less than AR.
Figure 1.2-Demand curve under monopoly marketPrice leading is present in monopoly as the house can bear down a high monetary value and take the advantage of being a exclusive marketer but they can bear down a sensible monetary value because it helps in long tally growing. In the long tally, new houses may come in the market and the bing houses market portion may fluctuate. So in their ain involvement monopoly house charge a sensible monetary value.
It is a market state of affairs where elements of both monopoly every bit good as competition coexist together and differentiated merchandises are sold in the market.FEATURES OF MONOPOLISTIC COMPETITION MARKETVery big figure of purchasers and Sellerss exist. This is a practical market which exists in world.Differentiated or heterogenous merchandises are available in this market. Each marketer is selling different merchandises from others making a monopolizer inclination.
In this market, monetary value ever remains in a really close scope as the trade goods are perfect replacements of each other.The demand curve confronting the monopolistic competition market is once more downward inclining but more elastic.In this market MR curve is ever less than AR i.e. the extra gross earned is ever less than the mean gross.
Firms are free to come in and issue.Price competition is at that place in monopolistic competition market. Because of the handiness of close replacements, a alteration in monetary value of one merchandise affects the demand of other merchandise.Monetary value
MeasureFigure 1.3-Demand curve under monopolistic competitionNon-price competition under this signifier of market is possible due to handiness of close replacements of the merchandise. The house in order to pull more clients and retain them would vie with each other on the footing of non-price factors on promotional forepart i.
e. advertisement etc. However, the elements of monetary value competition are besides present in this signifier of market but the monetary value ever keeps in a really close scope.Example, Once Coke increased its monetary value from Rs.20 to Rs.
22 in order to vie with Pepsi.
It is a market state of affairs where few Sellerss exist with big figure of purchasers and both homogenous every bit good as heterogenous merchandises are available. There is intense competition among them every bit far as monetary value and end product policy is concerned.FEATURES OF OLIGOPOLY MARKETThe figure of Sellerss are more than 2 and less than or equal to 10.Both homogenous and heterogenous merchandises are sold.Both conniving every bit good as non-collusive signifier of oligopoly market exists.The demand curve in oligopoly market is really hard to find ( Indeterminate demand curve ) .
There is non-price competition in conniving oligopoly and monetary value competition in non-collusive oligopoly. The demand of other houses is determined by the monetary value fluctuation of any of the existing houses. Until and unless the challenger ‘s reaction is non known when there is a alteration in monetary value, the demand curve can non be determined.Let ‘s discourse the construct of snap so that we can cognize about the different grades of snap in assorted signifiers of market.
Elasticity is the grade of reactivity for a trade good to a alteration in its monetary value. Elasticity measures the sensitiveness of one variable to another.
When a consumer is giving response to the monetary value alteration he is more elastic whereas if a consumer is non giving response to the monetary value alteration, he is less elastic.DIFFERENT TYPES OF ELASTICITYPrice Elasticity of DemandPrice snap of SupplyIncome snap of DemandCross ElasticityMeasurementElasticity can be measured by following three methodsProportion method/percentage methodGeometric method/point snap methodOutgo or entire spending methodTerminology of snapTermNumeric step of snapVerbal Description
Price snap of demand ( supply )
Absolutely or wholly inelasticNothingMeasure Dd ( supplied ) does non alterations as monetary value alterationsInelasticGreater than zero, less than oneMeasure Dd ( supplied ) alterations by a smaller % as does monetary valueUnit ElasticityOneMeasure Dd ( supplied ) alterations by precisely the same % as does monetary valueElasticGreater than one, but less than eternityMeasure Dd ( supplied ) alterations by a larger % as does monetary valueAbsolutely, wholly, or boundlessly elasticEternityBuyers ( Sellerss ) are prepared to purchase ( sell ) all they can at some monetary value and none at all at an even higher ( lower ) monetary value.
Income Elasticity of Demand
Inferior goodNegativeQty Doctor of Divinity decreases as income additionsNormal goodPositiveQty Doctor of Divinity additions as income additionsIncome-inelasticLess than oneLess than in proportion to income additionIncome-elasticGreater than oneMore than in proportion to income addition
Cross Elasticity of Demand
SubstitutePositiveQd of some good and monetary value of a replacement are positively relatedComplementNegativeQd of some good and monetary value of a complement are negatively related
COMPARISON OF MARKETS ON THE BASIS OF ELASTICITY
Market signifiersPrice snap of demand
The demand in perfect competition is absolutely elastic which means with or without alteration in monetary value, measure demanded may increase or diminish to any extent.
The demand in monopoly market is less elastic. A alteration in monetary value will non impact the demand by much. As there is merely individual marketer in monopoly market, purchasers do non hold much options in forepart of them therefore the demand is less elastic.
The demand is more elastic in monopolistic competition. It merely means that every bit shortly as there is a alteration in monetary value, there will be a greater alteration in measure demanded.
The demand curve confronting a monopolistic competition is downward inclining but MORE ELASTIC.
In oligopoly market, the demand curve can be both more elastic and less elastic depending upon the challenger ‘s reaction to alter in monetary value.
In current market scenario, most houses compete on the footing of non-price competition. Though there are some disagreements in the monetary values charged by different houses, houses most frequently prefer and follow non-price competition because it leads to consumer public assistance every bit good as houses profit in long tally.
PART – Two
I visited Reliance Fresh ( a departmental shop ) in order to carry on a research on floor cleansing detergents.As I entered the shop I observed that on the left manus side there is a rack with five shelves on which all the toilet articless points are displayed.
Floor cleansing detergents are kept on three upper shelves of the rack. Adequate infinite is provided for the floor cleansing detergents and they can be seen easy from both sides of the rack. Glass cleansing detergents are besides put along with floor cleansing detergents. On the topmost shelf, DOWSIL which is the in house trade name of trust chemicals is putted. The shop is advancing DOWSIL because the net income border is high as compared to other trade names as it is a merchandise of trust chemicals. And they are giving a complementary floor cleaning coppice with DOWSIL in order to pull larger figure of clients.
It is priced lower than other trade names available.Trade namesI saw six floor cleaning detergent trade names that were available. They are:LIZOLDOMEXCIFEasy off knockMr MuscleDOWSIL perfumed floor cleansing agent ( phenyl )CompanyFloor CleanerssDiscrepancyMeasureSum( Sri lanka rupees )RECKITT BENCKISERLIZOLBLUE975ML99.
00BLUE500ML52.00PINK FRAGRANCE500ML54.00LEMON EXPLOSION500ML54.00BEACHPOWDER ( LIQUID )500ML50.
00HINDUSTAN UNILEVERCIF500ML78.00250 ML53.00120ML27.00HINDUSTAN UNILEVERDOMEXWhite500ML54.00White1 LTR108.00HINDUSTAN UNILEVERDOMEX 2IN 1BLACK500ML50.
00SC JOHNSONMR. Muscle( floor cleansing agent )500ML50.00RECKITT BENCKISEREASY OF BANG400ML65.00RELIANCE CHEMICALSDOWSIL PERFUMED1LTR662LTR1493LTR250I asked consumers some inquiries such asHow make you take your floor cleaning detergent?Make you travel by advertizement, if yes what are the characteristics that attract you the most?This helped me to come to these illations:Peoples go by experimental ads i.e.
the ads which really show how their merchandise is different from others and the offers that they are acquiring such as “ purchase 2 and acquire 1 free ” .Monetary value, packaging and merchandise quality affairs for them but they do n’t cognize much about the ingredients.Here the demand of floor cleaners goes on increasing with the cost, packaging alterations and the attraction of the advertizement.In my observation I can state that the floor cleaning detergent market is an oligopoly market construction because there are merely 6-7 chief participants present in the market while considered separately. Entry is comparatively easy but each trade name is a different merchandise in itself, therefore even though houses are viing with each other each one is a monopoly by itself.
ECONOMIC CONCEPTS BASED ON OBSERVATION
Monetary value and non-price competition
All the trade names compete with each other. The competition is monetary value and non-price depending upon the snap. The trade names chiefly compete with trade name distinction.
The different trade names fight with packaging, new invention and advertizements. So here we can state the floor cleaning market is holding chiefly non monetary value competition as the monetary values are comparatively same. On the other manus, local in-house trade names are viing on monetary value ; they are puting themselves comparatively cheaper than others in order to increase their gross revenuesThe competition here determines the topographic point and place of the house which is named as manufacturer.
Elasticity of demand
The demand in floor cleaning detergents market is more elastic i.e. if one trade name increases its monetary value, demand for other trade name additions as it is consumers behaviour to switch to replacements when monetary value of a peculiar merchandise additions.
Packaging and merchandise quality
The market portion depends upon the sum of work the house puts on in distinguishing its merchandise from the other 1s. For illustration when seen the distinction LIZOL and DOMEX are coming in many discrepancies which gives consumers a broad pick of discrepancies harmonizing to their demand. They are concentrating more on packaging and merchandise quality. This helps in increasing the demand of a peculiar trade name. So we can state that here DOMEX has created its monopoly in the market till the clip another house gets into this really thought i.e.
responds to it with its merchandise with some new invention in this section of the consumer to dispute its monopolyWhen this happens the participants in the market acquire into competition once more presenting new merchandise with some new difference.
Big trade names such as DOMEX and LIZOL are following monetary value planing policy as they are comparatively bear downing high monetary values than other trade names in order to plane the market.On the other manus, there are some local trade names such as DOWSIL which are viing with other trade names on monetary value. They are following monetary value incursion policy.
As compared to other trade names, these trade names are comparatively inexpensive.
This floor cleaning detergents market really is a good field to analyze the economic constructs like market construction, snap and competition, and cost factor.Harmonizing to me, this section of the market is providing to the high income consumers, there is non-price competition. Since here consumers are less-price sensitive and are affected by the advertizements or merchandise development undertaken by the house. Hence, we do non see much monetary value competition in this section. But there are some local participants who are viing with other trade names on the footing of monetary value. Alternatively houses providing to this section merely seek to monetary value themselves every bit stingily as possible to pull the maximal figure of consumers.In this study, I have tried my degree best to touch up on the different economic facets that are predominating in the floor cleaning detersive market.