CONCEPTS AND TYPES OF MARKETS, ENGINEERING ECONOMICS & FINANCIAL ACCOUNTING

7/27/2019 CONCEPTS AND TYPES OF MARKETS, ENGINEERING ECONOMICS & FINANCIAL ACCOUNTING

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Dr.K.Baranidharan

Present by

131-07-2013


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Engineering Economics

& Financial Accounting

MANAGERIALECONOMICS

231-07-2013


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CONCEPTS ANDTYPES OFMARKETS

ENGINEERING ECONOMICS &

FINANCIAL ACCOUNTING

CS FINAL YEAR & IT THIRD YEAR


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MARKET Market is defined as a place or point at which

buyers and sellers negotiate for exchange ofwell-defined products or services.

Traditionally, market was referred to a public

place in a village or town where provisions andother objects were brought for sale.

Based on location, markets are classified as

rural, urban, national or world markets. Market is said to exist wherever there is a

potential for trade

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Today with improving technology and modern

facilities, the definition of market has undergone a

sea change In the modern context, market refers to a meeting

point of buyer and seller, but not necessary a

geographical one.

It is not necessary that the buyer must meet the

seller in person.

While traditional avenues such as Value payable by

Post (VPP) continue to be popular, e-commercethrough internet has been the latest avenue for

firms to sell larger volumes of their products and

services via online negotiations where necessary.13 August 2013 5


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SIZE OF MARKET

The size of the market depends on

many factors such as nature of

products, nature of their demand,

tastes and preferences of customers,their income level, state of technology,

extent of infrastructure, including

telecommunications and information

technology, time factor in terms of

short run or long run and so on13 August 2013 6


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MARKET CONDUCT Market conduct refers to the behavioral aspects

of sellers and buyers operating in a market.

Market conduct consists of:

A) the business objectives of the firms such asprofit maximization and sales maximization or

market share. B) customizing the products as per the specific

requirements of buyers such as assembling of apersonal computer as per the specifications ofthe buyer and making it cost effective.

C) improving the quality of the product andmaking it available at a lower price

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D) marketing strategies and tactics adopted by

the firms to establish competitive edge over rival

firms. These include various pricing strategies such as

deliberately charging a low price in order to

penetrate into the market and expand salesquickly, pricing the product deliberately as a

higher level in order to make as much profits as

possible in the quickest possible time.

Change in advertising and sales promotion

strategies, variations in the quality and make of

the products, innovative packaging techniques

and design etc.,13 August 2013 8


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MARKET PERFORMANCE When the suppliers/sellers utilize the economic

resource/inputs to their maximum efficiency and to the

ultimate benefit of consumers, the market is said to be

effective in its performance.

The following are the essentials of market performance:

A)Efficiency in production:

When the process of production of goods and services

is cost effective, efficiency is said to prevail in

production processes.

The firm should make efforts to minimize the costs

while maximizing the output. Scale economics should

be fully exploited.13 August 2013 9


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B) Efficiency in distribution:

Distribution is the process of storing and

moving the products to consumers often thoughintermediaries such as wholesalers and retailers.

Channel of distribution is the route followed for

physical distribution of a product form themanufacturer to the ultimate consumer.

The channel of distribution should be effectively

manag3ed to bring down the distribution coststo the minimum and to make the product

available to the ultimate customer without any

sort of inconvenience.13 August 2013 10


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C) Fixation of Prices:

The price should be fixed at reasonable level leavingreasonable profit/return to the suppliers/sellers.

D) Product performance: The customers always look for variety,

sophistication in design and quality at reasonableprice. The firm should provide value-for-money.

E) Improved technology: Innovations in technology bring down the costs of

product and process manufacturing and inprove thefeatures of the product.

The growing demands of the customers can be metbetter though introduction of process and productinnovations. These also reduce the supply costs inreal terms.

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MARKET STRUCTURE

Market structure refers to the

characteristics of a market that influence

the behavior and performance of firms that

sell in that market.

The structure of market is based on the

following features:

1.The degree of seller concentration: This refers to the number of sellers and

their market share for given product or

service in the market13 August 2013 12


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2.The degree of buyer concentration:

This refers to the number of buyers and their extentof purchase of a given product or service in the

market. 3.The degree of product differentiation:

A firm may differentiate its product form that of thecompetitor though advertising, creating a brand

image, product design, variation in quality,packagining location and so on.

This refers to the extent by which the product ofeach trader is differenciated from that of the other.

Product differentiation can take several forms suchas varieties, brands, all of which are sufficientlysimilar to distinguish them, as a group, from otherproduct

13 August 2013 13


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4. The conditions of entry to the market:

Often, there could be certain

restrictions to enter or exit from the

market. The degree of ease with which

one can enter the market or exit from italso determines the market structure.

In other words there could be large

number of firms if there arent manyrestrictions on entering the market and

vice versa

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COMPETITIVE MARKET SITUATIONS

The lesser the power an individualfirm has to influence the market inwhich it operates, the more

competitive the market is. If a firmcan influence the market by offeringproducts and services at better or

attractive terms and conditions, it issaid to have grater power to influencethe market.

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TYPES OF COMPETITION The interconnected characteristics of a market, such as

the number and relative strength of buyers and sellers

and degree ofcollusion among them, level and forms of

competition, extent ofproduct differentiation, and ease

ofentry into and exit from the market

Four basic types of market structure are (1) Perfectcompetition: many buyers and sellers, none being able

to influence prices. (2) Oligopoly: several large sellers

who have some control over the prices. (3) Monopoly:

single seller with considerable control over supply andprices. (4) Monopsony: single buyer with considerable

control over demand and prices.

13 August 2013 16
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PERFECT COMPETITION

The theoretical free-market situation in which the

following conditions are met: (1) buyers and sellers aretoo numerous and too small to have

any degree of individual control over prices, (2) all

buyers and sellers seek to maximize

their profit (income), (3) buyers and seller can freely

enter or leave the market, (4) all buyers and sellers

have access toinformationregardingavailability, prices,

and quality ofgoods being traded, and (5) all goods ofa particular nature are homogeneous, hence

substitutable for one another. Also called perfect

market or pure competition.

13 August 2013 17
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Features of perfect competition 1. Large number of buyer and sellers:

Each buyer buys a small quantity of the totalamount.

Each seller is so large that no single buyer orseller can influence the price and affect themarket.

Buyers and sellers are price takers in the purelycompetitive market.

Each seller (or firm) sells its products at the pricedetermined by the market.

Similarly, each buyer buys the commodity at the

price determined by the market.13 August 2013 18


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2.Free entry and exit:

Under perfect competition, there will be

no restriction on the entry and exit of bothbuyers and sellers. If the existing sellers

start making abnormal profits, new sellers

should be able to enter the market freely.

This will bring down the abnormal profits

to the normal level. Similarly, when losses

will occur existing sellers may leave the

market. However, such free entry or free

exit is possible only in the long run, but not

in the short-run.13 August 2013 19


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3.Perfect knowledge:

Perfect competition implies perfect

knowledge on the part of buyers and

sellers regarding the market

conditions. As a results, no buyer willbe prepared to pay a price higher than

the prevailing price. Sellers will not

charge a price higher or lower thanthe prevailing price. In this market,

advertisement has no scope.13 August 2013 20


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4.Perfect mobility of factors of

production:

The second perfection mobility of

factors of production from one use to

another use. This feature ensures thatall sellers or firms get equal

advantages so far as services of factors

of production are concerned. This isessential to enable the firms and

industry to achieve equilibrium.13 August 2013 21


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5. Homogenous Product

In this case, all sellers producehomogeneous i.e. perfectly

identical products. All products are

perfectly same in terms of size,shape, taste, colour, ingredients,

quality, trade marks etc. Thisensures the existence of single

price in the market.13 August 2013 22


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6. Each firm is a price taker:

A firm in a perfect market cannotinfluence the price though its

own individual actions. It has no alternative other than

selling its products at the priceprevailing in the market

13 August 2013 23

T t l R (TR)


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Total Revenue(TR),

Average Revenue(AR) and

Marginal Revenue(MR)

Total revenue ( TR ) is the total amount

of money(or some other good) that afirm receives from the sale of its goods.

It the firm practices single pricing

rather than price discrimination, TR =total expenditure of the consumer = P

x Q13 August 2013 24


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Total Revenue, Average Revenue and

Marginal Revenue Average revenue ( AR ) is the total

amount of money(or some other good)

that a firm receives from the sale

divided by the number of units of

goods sold. AR = TR/Q, since TR=P x Q, then AR =

P for single pricing practice13 August 2013 25


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Total Revenue, Average Revenue and

Marginal Revenue Marginal revenue ( MR ) is the

change in total revenue resultingfrom selling an extra unit of goods.

MR = TR/Q, where TR =change in TR due to change in Q,

Q = change in Q13 August 2013 26


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Imagine that one more book is sold. Since the selling is

done at a given market price of rs.10 the additional

revenue (MR) by selling one more unit will be rs.10

Consider this example. Your are selling notebooks. Eachbooks cost rs.10 your are not going to given any discount or

concession even if a buyer purchases more number of

books at a time. Suppose 10m books are sold.

The total (TR) revenue is rs.100. the average revenue (AR) isrs.10 (100/10).

Suppose you are selling one more notebook. Since you are

selling at the given market price of rs.10, the additional

revenue (MR) by selling one more unit will be rs.10

Thus, under perfect competition Price =Average Revenue

(AR) = Marginal Revenue (MR)

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IMPERFECT COMPETITION

Real world' competition that is less effective in

lowering price levels nearer to the cost levels than

the theoretical perfect competition. Conditions

that help cause imperfect competition include (1)restrictedflow ofinformationon costs and prices,

(2) near monopoly power of some suppliers, (3)

collusion among sellers to keep prices high, and(4) discrimination by sellers among buyers on the

basis of their buying power.

13 August 2013 28
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MONOPOLY

Market situation where one producer (or

a group of producers acting in concert)controlssupply of a good or service, and

where the entry of new producers is

prevented or highly restricted.

Monopolist firms (in their attempt to

maximize profits) keep the pricehigh andrestrict the output, and show little or no

responsiveness to the needs of their

customers.13 August 2013 29
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Most governments therefore try to control

monopolies by (1) imposing price controls, (2) taking

over their ownership (called 'nationalization'), or (3)

by breaking them up into two or more competing

firms. Sometimes governments facilitate the

creation of monopolies for reasons of national

security, to realize economies of scale for competinginternationally, or where two or more producers

would be wasteful or pointless (as in the case of

utilities). Although monopolies exist in varying

degrees (due to copyrights, patents, access to

materials, exclusive technologies, or unfair trade

practices) almost no firm has a complete monopoly

in the era ofglobalization13 August 2013 30

MONOPOLY COMPETITION
http://www.businessdictionary.com/definition/government.htmlhttp://www.businessdictionary.com/definition/price-control.htmlhttp://www.businessdictionary.com/definition/ownership.htmlhttp://www.businessdictionary.com/definition/call.htmlhttp://www.businessdictionary.com/definition/nationalization.htmlhttp://www.businessdictionary.com/definition/competing.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/economies-of-scale.htmlhttp://www.businessdictionary.com/definition/utility.htmlhttp://www.businessdictionary.com/definition/degree.htmlhttp://www.businessdictionary.com/definition/due.htmlhttp://www.businessdictionary.com/definition/copyright.htmlhttp://www.businessdictionary.com/definition/patent.htmlhttp://www.businessdictionary.com/definition/access.htmlhttp://www.businessdictionary.com/definition/material.htmlhttp://www.businessdictionary.com/definition/technology.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/globalization.htmlhttp://www.businessdictionary.com/definition/globalization.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/unfair-trade-practice.htmlhttp://www.businessdictionary.com/definition/technology.htmlhttp://www.businessdictionary.com/definition/material.htmlhttp://www.businessdictionary.com/definition/access.htmlhttp://www.businessdictionary.com/definition/patent.htmlhttp://www.businessdictionary.com/definition/copyright.htmlhttp://www.businessdictionary.com/definition/due.htmlhttp://www.businessdictionary.com/definition/degree.htmlhttp://www.businessdictionary.com/definition/utility.htmlhttp://www.businessdictionary.com/definition/economies-of-scale.htmlhttp://www.businessdictionary.com/definition/economies-of-scale.htmlhttp://www.businessdictionary.com/definition/economies-of-scale.htmlhttp://www.businessdictionary.com/definition/economies-of-scale.htmlhttp://www.businessdictionary.com/definition/economies-of-scale.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/competing.htmlhttp://www.businessdictionary.com/definition/nationalization.htmlhttp://www.businessdictionary.com/definition/call.htmlhttp://www.businessdictionary.com/definition/ownership.htmlhttp://www.businessdictionary.com/definition/price-control.htmlhttp://www.businessdictionary.com/definition/price-control.htmlhttp://www.businessdictionary.com/definition/price-control.htmlhttp://www.businessdictionary.com/definition/government.html


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MONOPOLY COMPETITION Market situation midway between the extremes of

perfect competition and monopoly, and displaying

features of the both. In such situations firms are free to

enter a highly competitive market where several

competitors offer products that are close (but not

perfect) substitutes and, therefore, prices are at thelevel ofaverage costs (a feature of perfect competition).

Also, some consumers have a preference for one

product over another that is strong enough to make

them keep buying it even when its price increases, thusgiving its producer a small amount of market power (a

feature of monopoly). Monopolistic situation is a

common situation in all free markets13 August 2013 31
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DUOPOLY

Market situation in which only

sellers supply a particularcommodity to many buyers. Either

seller can exert some control overthe output and prices, but must

consider the reaction of its sole

competitor (unless both have

formed an illegal collusive duopoly).13 August 2013 32
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Example

A soft drink market with twocompanies such as Pepsi and Coke is

called duopoly.

Basic facilities for satellite

communication are presently

provided by the MahanagarTlelphoine Nigam Limited (MTNL)

and Videsh Sanchar Nigam Limited

(VSNL)13 August 2013 33

OLIGOPOLY


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OLIGOPOLY Market situation between, and much more common

than, perfect competition (having many suppliers)

and monopoly (having only one supplier). Inoligopolistic markets, independent suppliers (few in

numbers and not necessarily acting in collusion) can

effectively control the supply, and thus the price,thereby creating a seller's market.

They offer largely similar products, differentiated

mainly by heavy advertising and promotionalexpenditure, and can anticipate the effect of one

another's marketing strategies. Examples include

airline, automotive, banking, and petroleum

markets. Mirror image of oligopsony.13 August 2013 34

E l
http://www.businessdictionary.com/definition/common.htmlhttp://www.businessdictionary.com/definition/perfect-competition.htmlhttp://www.businessdictionary.com/definition/supplier.htmlhttp://www.businessdictionary.com/definition/monopoly.htmlhttp://www.businessdictionary.com/definition/oligopolistic.htmlhttp://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/independent.htmlhttp://www.businessdictionary.com/definition/acting.htmlhttp://www.businessdictionary.com/definition/collusion.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/supply.htmlhttp://www.businessdictionary.com/definition/labor-rate-price-variance.htmlhttp://www.businessdictionary.com/definition/hard-market.htmlhttp://www.businessdictionary.com/definition/offer.htmlhttp://www.businessdictionary.com/definition/product.htmlhttp://www.businessdictionary.com/definition/advertiser.htmlhttp://www.businessdictionary.com/definition/expenditure.htmlhttp://www.businessdictionary.com/definition/marketing-strategy.htmlhttp://www.businessdictionary.com/definition/examples.htmlhttp://www.businessdictionary.com/definition/banker.htmlhttp://www.businessdictionary.com/definition/petroleum.htmlhttp://www.businessdictionary.com/definition/image.htmlhttp://www.businessdictionary.com/definition/oligopsony.htmlhttp://www.businessdictionary.com/definition/oligopsony.htmlhttp://www.businessdictionary.com/definition/oligopsony.htmlhttp://www.businessdictionary.com/definition/image.htmlhttp://www.businessdictionary.com/definition/petroleum.htmlhttp://www.businessdictionary.com/definition/banker.htmlhttp://www.businessdictionary.com/definition/examples.htmlhttp://www.businessdictionary.com/definition/marketing-strategy.htmlhttp://www.businessdictionary.com/definition/marketing-strategy.htmlhttp://www.businessdictionary.com/definition/marketing-strategy.htmlhttp://www.businessdictionary.com/definition/expenditure.htmlhttp://www.businessdictionary.com/definition/advertiser.htmlhttp://www.businessdictionary.com/definition/product.htmlhttp://www.businessdictionary.com/definition/offer.htmlhttp://www.businessdictionary.com/definition/hard-market.htmlhttp://www.businessdictionary.com/definition/hard-market.htmlhttp://www.businessdictionary.com/definition/hard-market.htmlhttp://www.businessdictionary.com/definition/labor-rate-price-variance.htmlhttp://www.businessdictionary.com/definition/supply.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/collusion.htmlhttp://www.businessdictionary.com/definition/acting.htmlhttp://www.businessdictionary.com/definition/independent.htmlhttp://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/oligopolistic.htmlhttp://www.businessdictionary.com/definition/monopoly.htmlhttp://www.businessdictionary.com/definition/supplier.htmlhttp://www.businessdictionary.com/definition/perfect-competition.htmlhttp://www.businessdictionary.com/definition/perfect-competition.htmlhttp://www.businessdictionary.com/definition/perfect-competition.htmlhttp://www.businessdictionary.com/definition/common.html


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Example

Car manufacturing companies (such as Maruti-

Suzuki, Hindustan Motors, Daewoo, Toyota etc.,)and Newspapers (such as The Hindu, Indian Express,Times of India, Economic Times, Eenadu, etc,)

In oligopoly, each individual seller or firm can affect

the market price. When The Times of India slashedthe price of ots daily newspaper, most othercompanies such as Indian Express and The Hindufollowed suit.

Oligopolistic market situations are very common insectors relating to manufacturing, transportation,communication and so on.

13 August 2013 35

O O SO


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MONOPSONY

A term used to describe a market

where a very large buyer typically

dominates the price action. In a

monopsony, the large buyer istypically able to force prices to

decline and this type of market

contrasts with a monopoly where a

large seller is able to drive up

rices.13 August 2013 36
http://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/action.htmlhttp://www.businessdictionary.com/definition/able.htmlhttp://www.businessdictionary.com/definition/force.htmlhttp://www.businessdictionary.com/definition/price.htmlhttp://www.businessdictionary.com/definition/monopoly.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/drive.htmlhttp://www.businessdictionary.com/definition/drive.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/monopoly.htmlhttp://www.businessdictionary.com/definition/price.htmlhttp://www.businessdictionary.com/definition/force.htmlhttp://www.businessdictionary.com/definition/able.htmlhttp://www.businessdictionary.com/definition/action.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/market.html


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Example

The Food Corporation of

India is the only

government organization

that purchase agricultural

produce such as rice and

so on13 August 2013 37


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DUOPSONY

Market situation in which only

two buyers create the entire

demand for a commodity

supplied by many sellers a

mirror image of duopoly.

13 August 2013 38
http://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/create.htmlhttp://www.businessdictionary.com/definition/demand.htmlhttp://www.businessdictionary.com/definition/commodity.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/image.htmlhttp://www.businessdictionary.com/definition/duopoly.htmlhttp://www.businessdictionary.com/definition/duopoly.htmlhttp://www.businessdictionary.com/definition/image.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/commodity.htmlhttp://www.businessdictionary.com/definition/demand.htmlhttp://www.businessdictionary.com/definition/create.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/market.html


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OLIGOPSONY

Market situation where

presence of few buyers and

many suppliers creates a

buyer's market. Mirror image

of oligopoly.

13 August 2013 39
http://www.businessdictionary.com/definition/market.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/supplier.htmlhttp://www.businessdictionary.com/definition/create.htmlhttp://www.businessdictionary.com/definition/soft-market.htmlhttp://www.businessdictionary.com/definition/image.htmlhttp://www.businessdictionary.com/definition/oligopolistic.htmlhttp://www.businessdictionary.com/definition/oligopolistic.htmlhttp://www.businessdictionary.com/definition/image.htmlhttp://www.businessdictionary.com/definition/soft-market.htmlhttp://www.businessdictionary.com/definition/soft-market.htmlhttp://www.businessdictionary.com/definition/soft-market.htmlhttp://www.businessdictionary.com/definition/create.htmlhttp://www.businessdictionary.com/definition/supplier.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/market.html


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Example

A few news paper publishing

companies in India and all these buy

newsprint from the Government of

India. A good number of computer

assembly operators who buy

computer components on a

wholesale basis.

13 August 2013 40


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Dr.K.Baranidharan

Thank youK YOU

4131-07-2013


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Documents

CONCEPTS AND TYPES OF MARKETS, ENGINEERING ECONOMICS & FINANCIAL ACCOUNTING