Pricing
- 1. PricingPricing Prepared by:Prepared by: JINESH SHAHJINESH SHAH
- 2. Introduction to pricing concept. • Pricing is an important function of all enterprises. • Since every enterprise is engaged in production of some goods or services, incurring some expenditure to sell in the market, it must set a price for its products. • There is never a unique price. Instead there are multiple prices. • While selecting the price for any product, the answer of following questions should be given: Price of what? Price to whom? Price where? Price when?
- 3. • Unless a good is properly defined, one can’t talk of its prices. Ex: Maruti Car (Multiple prices) • Price is different for wholesalers and commission agents, to retailers and to customers. • Secondly, price of a good also depends on the place where it is received; for there is a transport cost. • Thus, it can be concluded that the case of multiple price is more serious in case of items like cars, refrigerators, furniture, bricks, etc. and it is of a little significance for items like shaving blades, soaps, tooth pastes, creams and stationery.
- 4. Price determinants • The price of a product is determined by the demand for and the supply of that product. • The role of these two determinants are like that of a pair of scissors in cutting cloth. Price Demand Supply 5 100 200 4 120 180 3 150 150 2 200 110 1 300 50
- 5. Change in demand, supply constant INCREASE IN ‘D’
- 6. Change in demand, supply constant DEACREASE IN ‘D’
- 7. Change in supply, Demand constant. INCREASE IN ‘S’
- 8. Change in supply, Demand constant. DECREASE IN ‘S’
- 9. Change in demand and supply- unidirectional INCREASE IN BOTH
- 10. Change in demand and supply- unidirectional DECREASE IN BOTH
- 11. Change in demand and supply- opposite direction INCREASE IN ‘D’ AND DECREASE IN ‘S’
- 12. Change in demand and supply- opposite direction DECREASE IN ‘D’ AND INCREASE IN ‘S’
- 13. Conclusion. • In most countries today, prices of many goods and services are subject to government interventions of many various kinds. • These include direct interventions such as price setting/ pegging, price ceilings and price floors, and direct controls, such as taxes and subsidies. Through there measures, government exercise influence on product prices. • Taking into account all the factors discussed above, we have the following price function. Px = f (Dx, Sx, Gx) Px = price of good x Dx = demand for good x Sx = supply of good x Gx = govt. intervention in good x
- 14. Pricing under monopoly market. • Introduction: • In today’s world, we can find out many situations in the market. Monopoly is one of them. • Definition: In general, we can say that a monopoly means a one handed market. • In economic terminology, monopoly means if in the market there are number of buyers or consumers but only one supplier. • When there is only one buyer, the monopolist market becomes a bi-lateral monopoly market.
- 15. Features of monopoly market. Single seller of the product. In this type of market, only the firm produces the goods and supply such goods. Restriction to entry. In this market, there are strong barriers for making the entry of any new product such as economical barrier, legal barrier, etc. No close substitution. The monopolist market provides the goods which generally have no substitutes. Ex: Indian Railway.
- 16. EFFECTS OF MONOPOLIST MARKET IN SHORT RUN
- 17. • Here M.C. = Marginal cost M.R. = Marginal revenue. A.C. = Average cost A.R. = Average revenue. In the above diagram we can see that the firm is maximizing the profit. In the above diagram, P is the equilibrium and hence at P point, the M.R. and M.C. will become equal. i.e. in monopolistic market in short run we can say that M.R.=M.C. Here OMRS is total revenue of the firm and OMTS is total cost for the firm.The average curve includes normal profits and hence RSTC is nothing but a supernormal profit for the firm
- 18. LOSS MINIMIZATION Here all the persons may arise a question that can a monopolists incur losses? The answer is yes. At least it is possible in a short run. Since in short run if the demand is too small, then the A.R. is smaller than the A.C., which can be seen from the diagram
- 19. DIAGRAM
- 20. SOURCES OF MONOPOLY POWER • Immobilities of factors of production. • Ignorance of possible competitors. • Indivisibility. • A deliberate policy of excluding competitors.
- 21. Oligopoly. • Oligopoly is a term having two words, Oligo & poly. Oligo means a few and poly means sellers. Oligopoly means a market where there are only a few sellers.it is a monopoly of a few.
- 22. Features of oligopoly market. 1) Only a few sellers :- It is one kind of imperfect market. All producers are monopolist in a smaller or greater degree and yet all of them are in competition with others. When all oligopoly firms are more or less equal size, then it is known as full oligopoly. When one or two firms are dominant and rest of them are small sized, it is known as partial oligopoly.
- 23. (2) Interdependence :- In this market as there are only a few firms, each of the firms has a close watch on the activities of its rivals. (3) Non price competition :- In this market, there are few sellers. So the companies avoids price wars and tries to provide better qualities goods, after sales service, guarantees and warranties etc. and try to win over the buyers.
- 24. (4) Group behavior :- Avoid competition and try to collectively maximize their profit. (5) Entry :- Entry in the market may be free or closed, but one thing is certain that the entry in this type of market is very difficult. (6) Products :- Products of various firms may be substitutes or may be imperfact substitute.
- 25. (7) Kinked demand curve :- The demand curve under all other markets is linear and certain while here it is kinked or cornered. This point is explained in the following diagram.
- 27. It will be shown from the diagram that the kinked demand curve GDK is made up of two segments. Corresponding to lower is shown the inelastic portion of demand curve. This is because price reduction by a firm is followed by its rivals, whereas price increase isn’t followed by the rival firms.
- 28. In the above diagram OP shows the original price when the quantity is OM. When the firm raises the price from OP to OA,the other rival firms don’t follow this price and sales reduced from OM to OM1. The GD part shows the Elastic portion of demand curve. When the firms lower its price from OP to OB, at that time rival firms also follow this price reduction,there is only a marginal increase in sale from OM to OM2. And that part shows inelastic portion of demand curve.
- 29. (8) Price rigidity :- Under oligopoly, price tend to be a sticky. If any firm raises price to increase its profit, the rival firms will not follow it with the result that the former may find itself out of the market to the benefit of the rival firms. Hence no attempt will be made by any firm to raise its price. It is in the sense that prices tend to be rigid under oligopoly condition.
- 30. THANKS