MARKETSCOSTS AND REVENUE

Markets
Cournot, a French economist, that
understand by the term
says "Economists
'market' not any particular market place
in which thingsare bought and sold, but the whole
of region
in which buyers and sellers are in such free intercourseany
with one
another that the price of the same goods tends
and quickly"
to equality easily
Generally, in common
usage, a market is a public place in
a town where the goods are for sale
and where the sellers and
buyers meet for business transactions. In
not a single place where economics, market is
things are bought and sold but the wholee
region in which buyers and sellers are in such free intercourse
with one another.(A market means the whole
set of conditions
under which a commodity is marketed; the extent
and nature of
competition in selling, the nature and number of buyers, the
nature of the commodity that different sellers
offer, etc
A market is are of the varieties of systems,
many
institutions, procedures social relations and infra-structures
whereby parties engage in exchange. While parties may exchange
g0ods and services by barter, most markets rely on sellers offering
their goods or services (including labour) in
exchange for money
from buyers. It can be said that a market is the
process by which
the prices of goods and services are established.
(The concept of a market is any structure that allows buyers
and sellers to exchange any type of goods, services and
information The exchange of goods or services for money is a
transaction. Market participants consists of_all the buyers and
sellers of a good who influence its price.The market price is
influenced by the market forces of supply and demand.)
. There are two roles in markets, buyers and sellers.(The
market facilitates trade and enables the distribution and
allocation of resourees in a societ Markets allow any tradable
129)
 PRINCIPLES OF ECONOMICS FOR LAw
STUDEN
item to be evaluated and priced. A market emerges more or les
spontaneously or may be constructed deliberately by huma
interaction in order to enable an exchange of rights (ownershman
of services and goods.
market are
The essentials of a
which is for exchange;
1) A commodity
and sellers;
2) The existence of buyers
3) A place, be it a
certain region, a country or the ent
entire
world; and
(4) Such intercourse between buyers and sellers that. only
one price should prevail for the same commodity at th.
same time.
In modern time, market is not a place where buyers and
sellers exchange goods for money. Now without meeting at

place, buyers and sellers transact through communication means

Goods need not be brought to a place to sell. The transaction can
be made through samples or through description or gradation.

Classification of markets
(1) On the basis of area.-The markets are (1) local, (2
national, and (3) international markets.
(2) On the basis of time.-The markets are (1)
short-period markets, and (2) long-period markets.
(3) On the basis of types of participation.-)
Physical retail markets, such as local farmer's markets
(which are usually held in town squares or parking lots
on an ongoing or occasional (basis), shopping centres
market restaurants, and shopping
malls. (i
(Non-physical) internet market (e-commerce). (ii)
A0

hoc auction markets.

(4) On the basis of types of goods and services.-
a
Markets for intermediate goods used in production
other goods and services
(ii) Capital goods market
(ii) Consumer goods market
(iv) Labour markets
(v) International Currency and Commodity markes
(vi) Stock markets, for the exchange of shares
corporation
(vii) Any auction markets illiet

(vii) Illegal markets such as the market for

PART A-MICAO ECONOMICS 131

drugs, arms or pirated products.

(5) On the basis of competition.-The markets are (1)
perfect markets; and imperfect markets and the
imperfect markets are classified as (1) monopoly (2)
duopoly, (3) oligopoly, and (4) monopolistic competition.
PERFECT COMPETITION AND PURE COMPETITION
A market is said to be perfect when all the potential selers
and
and buyers are promptly aware of the prices at which
transactions take place and all the offers made by other sellers
and buyers, and when any buyer can purchase from any seller
and conversely"yThe prevalence of the same price for the same
commodity at the same time is the essential characteristic of a
perfect market.
Pure competition
Pure competition is another form of perfect
competition.
Sometimes a distinction is observed between pure competition and
perfect competition. The term 'pure competition' was introduced
by E.H. Chamberlin into the theory of pricing. Pure competition
is used in a rather restricted sense. Pure
to be entirely free from any
competition is supposed
monopoly element. Pure competition
1S a part and parcel of perfect competition. It contains limited
characteristics of large number of buyers and sellers and
homogeneous product only.
Characteristics
(1) A large number of unorganised sellers.The
number of sellers is to be large and the amount of sales
by each seller is small in relation to the market. None
of the sellers is able to influence the
price by his own
individual action of expanding or withholding his
produce. There is to be no agreement or collusion
among the sellers.
(2) A 1arge number of unorganised
buyers.-There
should be a large number of buyers in the market. No
single buyer influences the market price because his
demand is only a small proportion of the total demand.
The buyers are completely unorganised and
act
individually.
(3) A homogeneous product.-All the sellers in
the
market produce a perfectly similar product to
offer.
There will be no differentiation in colour,
shape, design
and service. There is no effect of any kind whatever
to
 PRINCIPLES OF ECONOMICS FOR LAW STUDE
132 DENTS
prejudice buyer's mind
in favour of their product,
their cro
goods in the market are identical_and are perfect
ross
demand is infinite. They perfe
elasticity of are standardised
All
substitutes for one another. goods
competition.-It is a wider
Perfect and
competition. Besides th
comprehensive term than pure
competition, followine
above three conditions of pure
fulfilled to make it a Derfofect
conditions must also be
competition :

(4) Free entry or exit.There should be no restrictions

or exit from
otherwise, on the firm's entry int0,
legal or
n0 restrictions on
the industry. Only when there
are on
normal profit.
entryexit, the firms will earn
or
purchasers and sellers
(5) Perfect knowledge.-The that are being
should be fully aware of the prices
offered and accepted. The same price prevails
will offer more and
throughout the market. Nobody
none will accept less.

(6) Perfect mobility of factors of production.-Free

into any use or
mobility of factors of production for themselves
industry which they consider profitable
essential in order to
is required. This characteristic is
demand.
enable the firms to adjust their supply
to
costs.-If the same price is to
(7) Absence of transport
that no cost of
rule in a market, it is necessary
transport has to be incurred.
conditions of perfect
(8) Absence of selling costs.-Under costs as the
competition, there is no need of selling
Chamberlin says,
goods are completely homogeneous.
"Purity requires only the absence of monopoly, which 15
realised when there are many buyers and sellers of the
same product. Perfection is concerned with other
perfect
matters as well-mobility of resources,
different tns
knowledge, etc." Thus perfection is a

from purity.
IMPERFECT COMPETITION here
When there is no perfect competition in the market, tn
exists an imperfect competition. There are different form Dol
imperfect
market such as monopolisticcompetition, oligop are

market structures
duopoly and monopoly. All these sets of
labelled"Imperfect Competition" by Mrs. Joan Robinson.
PAST4-MCROECONOMICs

133
lonopolistic competition.--Monopolistic competition is
1. Monopolistic co

.fimperfect
one form of. competition where there is a fairly
large
forsellers
number of sei but products are differentiated. The
numbharacteristics of monopolistic competition: following
are
(1) Existence of large number of firms and
huvers.-It involves many sellers and buyers, but the
number of dealers 18 not so large as under perfect
competition. They are unorganised.
Product differentiation.-The products are not
homogeneous. They are difterentiated by means of
different labels attached to them. The products are
close, although not exact substitutes. There is a high
cross-elasticity of demand between the products.
Differentiation can be brought about through
advertisement, publicity and propaganda.
(3) Ease of entry and exit.-There is no difficulty for a
new firm to enter into or an existing firm to leave the
industry. Each firm acts more or less independently

4) Different prices.-Either in ignorance or on account

of transport costs or lack of mobility of the factors of
market
production, same price does not rule in the
throughout.
curve-The demand
5) Downward sloping demand curve is
curve sales curve or the average revenue
or
not a horizontal straight line. It is, on the other hand,
curve. The demand for
the product
a downward sloping
to changes in
is not perfectly elastic, it is responsive
price.
is that form of imperfect
L Oligopoly.-Oligopoly
producing
few firms in the market,
competition where there are
a
products which are
or producing
either an homogeneous product of each other. Oligopoly is also
perfect substitutes
COse but not as incomplete monopoly
referred to limited competition',
be pertect or impertect,
monopoly, etc. Oligopoly may
ple or non-collusive,
partial or full, and
collusive
Peor close,
syndicated or organized.
oligopoly, the following factors
For emergence of the
fiune
function
investment.-There are
some industries
(1) High capital intensive and need. huge
which are highly capital
their development. This acts as
capital investments for new firms.
a barrier to the entry
of
 PRINCIPLES OF ECONOMICS FOR LAW STUD
134
the
STUDENTS
(2) Absolute cost advantages to existi
exi
firm.-Another barrier to the enry or firms iinto
firms
new

an industry may be the absolute dvantages wh:

cost advantages which
enjoyed by the existing firms.
arebeing
d i f f e r e n t i a t i o n . - P r o d u c t differentiation
(3) Product
to the emergence
is
an important
factor contributing gence of
oligopoly in a n industry.
(4) Economies
of large-scale production.-The
and the low
scale production ower
advantages of large
a firm to enlarge
its size wit
ith
costs of production drive
the passage of time.
and combinations.-Mergers and
(5) Mergers
combinations, by reducing the
number
of competing
firms ultimately result in
the establishment of
oligopolies. of n e w firms.-Sufficient
(6) Barriers to the entry
of n e w firms, lead to the
strong barriers to the entry
establishment of oligopolies.
Characteristics of oligopoly
sellers.-There are few firms. Since the
only a
(1) A few
firm enjoys a large
number of the firms is small, each
to influence
share of the market, and is in a position
in a significant
the price and output of the industry
manner.
Interdependence.-Since the number of the firms is
(2) the
firm can fail to take into account
small, no

reactions of other firms to its price and output policies.

of
Therefore, there is a good deal of interdependence
the firms under oligopoly.
curve-Mutual

Indeterminateness of demand
(3) atmosphere
o
interdependence of firms creates an

uncertainty for all the firms. No firm

under oligopoiy
is in a position to visualize the consequences of its pr
It canno
output policy with any degree of certainty.
make a n estimate of the demand of its products T
has to cut down the price of its products by a certa
is
demand curve
percentage. Hence, its or revenue

indeternminate. of
(4) Conflicting attitudes of
firms.-A peculiarity
oligopoly is the existence of the two conflicting attitu
in the market.
on the part of the firms operating
PART A-MICRO ECONOMICSs
135
5) Element of monopoly-Since each firm controls a
large share of the market and produces a differentiated
product, it acts in its own limited sphere as a petty
monopolist when it comes to price and output fixation.
(6) Price rigidity-Prices tend to be 'sticky' or rigid'
under oligopoly. If any firm raises the price, the rival
firms will not follow it.
III. Duopoly-It is a special case of oligopoly. When the
firms are only two, the market structure is called duopoly. French
economist A.A Cournot suggests a model of duopoly behaviour
TV Monopoly.-Leftwitch observes, "pure monopoly is a
market situation in which a single firm sells a product for which
there is n0 good substitute". According to A.F. Braff, "under pure
monopoly there is a single seller in the market. The monopolist's
demand is the market demand. The monopolist is a price-maker.
Pure monopoly suggests a no substitute situation."
Features of monopoly
(1) One seller and large number of buyers.-There is
only one seller of the product. The existence of single
seller eliminates the competition. The monopolist is a
firm as well as an industry. The number of buyers is
assumed to be large. No one buyer can influence the
price by his individial actions.
(2) No close substitutes.--There should be no close
substitutes of the product sold by the monopolist.
is a
(3) Restriction on the entry of new firms.-There
strict barrier on the entry of new firms. Monopolist
faces no competition.
costs
(4) Informative selling costs.-In monopoly, seling
are incurred in the beginning. These are done to give
information to the buyers about the product.
The demand
5) Downward sloping demand
curve.-

downwards from left

curve of an individual firm slopes
can sell more of
to right. It means that a monopolist
If he raises the price
hisoutput only at a lower price. reduced.
be
of his product, his sales will
because he
(6) Price-maker.-Monopolist is price-maker
a
and reactions of any
is not obliged to mind the policies
rival. A pure monopolist is
one who can charge any
his output.
price he likes by restricting
monopolist has
(7) Price discriminating power-The
136 PRINCIPLES OF ECONOMICS FOR LAWSTUDENTs
power to charge different prices in different markets
depending on the elasticity of demand for his product,
The following chart shows at glance different types
a
of
market forms on the basis of the nature of competition.