Business Decisions in Different Markets
Here, we understand what is market, about different markets, and about business decisions in detailed as follows.
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Business Decisions in Different Markets
Firstly we understand meaning of Market and Market Structures-
Meaning of Market -
'Market' refers to a place where a certain commodity is being sold and bought. cloth market, vegetable market, etc are example. In Economics, market is an organisation whereby buyers are brought in contact with sellers directly or indirectly.
Market Structures-
Markets can be classified on the basis of the degree of the competition as follows-
- Perfect Competition
- Monopoly
- Imperfect Competition
- Oligopoly.
- In Perfect Competition each firm is small in relate to the entire market that it cannot influence market price of the product. It implies that all firms or producers in a perfectly competitive market are price takers, not price makers. Each firm has to adjust its level of output in such manner that profits are maximised or losses are minimised. All firms produce and sell idential product, even advertisement unneccessary. Thus, price competition as well as non price competition ruled out in perfect competition. It implies that each firm will try to produce optimum level of output as efficiently as possible. Each firm will act automatically, ignore the competitiors, because close interdependence is non-existence.
- Under monopolistic competition, here the firms indulge in differentiated products, means different groups of buyers are attracted towards goods produced by different sellers. It give rise to element of monopoly in the market. To preserve monopoly power, each firm will have to take rational decisions about price, quality of product and sales promotion at same time. It indicates that monopolistic competition seems complicated situation in which every firm has to be alert every moment and try to secure equilibrium with reference to price, output, quality of the product and advertisement expenditure. The number of firms is very large, no close interdependence. Each firm can act automatically ignoring the decisions of the rival firms.
- Under monopoly, there is no rival firm in market. The monopolist has complete control over price. Since the firm's supply itself industry supply, the firm can raise price by reducing supply and reduce price by increasing supply. Thus monopolist will have to fix price and level of output both in such a manner that profits are maximised and losses are minimised. The monopolist firm have to adopt various methods to stall the entry of new firms. As long as it successful in its endeavour, its monopolist status remain safe. The moment other firms are able to force their entry into the industry, the monopolist firm loses its monopoly power.
- In oligopoly, here the number of sellers is small and every seller influences and is influeced by behaviour of other firms. The producers are dependent upon one another. Oligopoly without collusion results in independent actions by firms affecting one another. In this case firms often get engaged in price wars. They improve quality of the product, they rely on aggressive advertising. But it is always difficult to determine the reaction of the rival firms.
CONTINUE READING
Business Decisions in Different Markets
What is Market? Market Structure - Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
Business Decisions in Different Markets
Kinnari
Tech writer at NewsandStory