Chapter 5: Forms of Market

What is Market?

An arrangement through which buyers and sellers come in contact with each other directly or indirectly and exchange of goods and services takes place among them.

Classification of Market

1. On the Basis of Place

a) National

b) International

2. On the Basis of Time

a)Very Short Period

b) Short Period

c) Long Period

3. On the Basis of Competition

a) Perfect Competition

b) Imperfect Competition

i) Monopoly

ii) Monopolistic

iii) Oligopoly

Features of Perfect Competition (8M)

Def: it is an ideal and imaginary concept of a market with the demand of the output of each producer is perfectly elastic rather than an actual market.

1. Large no. of sellers and buyers- each forms a negligible part in the total market that none of them is in a position to influence the price and/ or supply in the market.

2. Homogeneous Product- All products are identical in shape, size, material, etc.

3. Free entry and exit- There are no barriers to the entry and exit of the firm.

4. Single Price- Uniform price prevails the market.

5. Perfect Knowledge of Market- Both buyers and sellers have full knowlege of market conditions.

6. Perfect Mobility of Factors of Production- they are not only geographically mobile but also occupationally.

7. Absence of Transport Cost- Price is uniform because we assume that transport cost does not exist.

8. No Government Interference- Laissez- faire policy is an important policy because it means there is no interference of Government.

Explain Oligopoly. (8M)

Oligopoly is derived from the Greek work ‘Oligo’ meaning few and ‘poly’ meaning sellers. Overall it is a market where there are only a few firms in the market producing a homogeneous or differentiated product.

1. Few firms or Sellers- Only a few dominate the market.

2. Interdependence- If one firm makes a change all others must follow in order to keep up

3. Advertising- Aggresive and attractive advertising campaign can capture a large part of the market.

4. Entry Barriers- Exit out of market is easy but entry requires licences and patents.

5. Lack of Uniformity- Some firms may be small or big.

6. Uncertainty- Firms have different behaviour patterns. Rivals may join hands or compete.

What is Imperfect Competition and example?

It is a type of market showing some but not all the features of a competitive market.

Example: Monopoly

What is Monopoly and its Features? (8M)

Monopoly is derived from the Greek work ‘mono’ meaning single and ‘poly’ meaning sellers. Overall it is a market when only one seller controls the whole market supply for a product that has no close substitute.

1. Single Seller- No competition but large number of buyers.

2. No close substitute- therefore buyers have no choice but to buy from the one seller.

3. Barriers to Entry- Rivals are restricted due to legal,natural, technological barriers.

4. Complete Control Over the Market Supply.

5. Price Maker- Monopolist can decide his own price.

6. Price Discrimination- Different prices for different consumers.

7. No distinction between firm and industry.

Types of Monopoly (8M)

1. Private- eg. Tata Group

2. Public- controlled by Government.

3. Legal- legal provisions like patents, copyrights, etc. prevent potential competitors to imitate the form of products already registered. eg. Amul

4. Natural- Based on natural conditions. eg. Wheat from Punjab.

5. Simple- Uniform price for all buyers.

6. Discriminating- Different prices to different buyers.

7. Voluntary- group of Monopolist is formed

What is Monopolistic Competition and it's Features? (8M)

It is a market which is very realistic in nature and has some features of Perfect Competition acting together.

1. Fairly Large Number of Sellers- comparatively less than that of Perfect Competition.

2. Fairly Large Number of Buyers- So no single can influence the price.

3. Free Entry and Exit.

4. Product Differentiation- The same product is in some way differentiated from every other firm in the market by shape, design, quality.

5. Selling Cost- Peculiar to this competition only.

6. Close Substitutes- eg. Dove and Santoor

7. Concept of Group- Chamberlin introduced number of firms producing identical products. Eg. Cars