Agriculture: a major source of pollution

Types of market (On the basis of Competition):

A. Perfect and pure competition market

Pure competition is said to exist in a market where (a) there is a large number of buyers and sellers (b) products are homogeneous and (c) there is freedom of entry and exit of buyers and sellers. 

Characteristics of perfect competition market:

1. Large number of small unorganized sellers and buyers;

The industry include large no. of firms (and buyers) , each individual firms supplies only small part of the total quantity offered in the market. Under these conditions each firm alone cannot affect the price in the market by changing its output.

Purchasing more or less, large buyers (but unorganized) could not affect in price.

2. Product homogeneity: All the sellers in the market have a perfectly similar product to offer. Product are perfectly substitute for one another: their cross elasticity of the demand is infinite.

3. Free entry and exit of firms:

No barrier to entry or exit from the industry. Entry or exit takes time but firms have freedom to move in and out of the industry.

4. Profit maximization: The goal of the firm is profit maximization

5. No government regulation/intervention: in terms of tariff, subsidies, import or export ruled out. These conditions made the firm to be a price taker and have an indefinitely elastic demand curve

If these conditions fulfill, market is said to be pure competition

6. Perfect knowledge among buyers and sellers about market condition: Sellers must know the prices being charged by other sellers or own self in the market. Similarly, the buyers must know the prices being charged by different sellers. Market information is free and costless.

7. Perfect mobility of factors of production (goods and services): Factors of production are free to move from one firm to other throughout the economy. Labour can move from different jobs, skills can be learned easily.

8. Absence of transport cost and selling cost: There would be no location disadvantage on cost.

Perfect and pure competition market Distinguish between pure competition and perfect competition. The implication of these conditions taken as a whole is that no individual seller is in a position to influence the price in the market. In perfect competition, all the three features of pure competition exist. Besides these, perfect competition has more features. These are (d) perfect knowledge of the buyers and sellers regarding the market conditions (e) perfect mobility of factors of production (f) absence of transport cost and (g) uniform price. Thus, perfect competition is not only pure but also free from other imperfection. It is a broader concept than pure competition. The essential feature of pure competition is the absence of any monopoly element.

B. Imperfect competition;

 Monopoly ;

 Monopolistic;

 Oligopoly

 Pure oligopoly without product differentiation

 Differentiated oligopoly with product differentiation

C. Monopolistic competition

Somewhere between perfect competition and monopoly, also known as imperfect competition. It describes many real-world markets. Perfectly competitive markets are extremely rare, and few firms enjoy a pure monopoly; oligopoly is more common. In monopolistic competition, there are fewer firms than in a perfectly competitive market and each can differentiate its products from

the rest somewhat, perhaps by advertising or through small differences in design. These small differences form barriers to entry. As a result, firms can earn some excess profits, although not as much as a pure monopoly, without a new entrant being able to reduce prices through competition. Prices are higher and output lower than under perfect competition.

The characteristics of Monopolistic market in detail:

1. large number of sellers: Number is so large that there is no mutual interdependence –each farm acts independently

2. Large numbers of buyers: Large number of buyers are offered differentiated products

3. Differentiated product

 Differentiation for creating preference of buyers

 Differentiation may be real (physical) by differences in materials used, design, colour etc or fancied (imaginary) by packaging, advertising, use of trademarks and brand names

 May be created by location of shop, courteous and smiling disposition of salesman, or reputation for fair dealing etc

4. Unrestricted entry: Entry in industry unrestricted

5. Selling cost: Every firm tries to promote its own brand of product through advertisement to attract consumer. This cost may also changes price

6. Price policy of a firm: Firm has its own price policy (can fix price)

7. Imperfect knowledge: Due to imperfect knowledge consumers may feel certain product superior which is advertised

8. Non-price competition: Firm can compete with its competitor by some methods rather than price –guarantee of repair, after sales service, gift scheme, and free home delivery.

D. Monopoly

When the production of a good or service with no close substitutes is carried out by a single firm with the market power to decide the price of its output. Contrast with perfect competition, in which no single firm can affect the price of what it produces. Typically, a monopoly will produce less, at a higher price, than would be the case for the entire market under perfect competition. It decides its price by calculating the quantity of output at which its marginal

revenue would equal its marginal cost, and then sets whatever price would enable it to sell exactly that quantity.

In practice, few monopolies are absolute, and their power to set prices or limit supply is constrained by some actual or potential near-competitors (see monopolistic competition). An extreme case of this occurs when a single firm dominates a market but has no pricing power because it is in a contestable market; that is, if it does not operate efficiently, a more efficient rival firm will take its entire market away. Antitrust policy can curb monopoly power by encouraging competition or, when there is a natural monopoly and thus competition would be inefficient, through regulation of prices. Furthermore, the mere possibility of antitrust action may encourage a monopoly to self-regulate its behaviour, simply to avoid the trouble an investigation would bring.

Features of monopoly:

 One seller and large number of buyers;

 No close substitute;

 Restriction on the entry of new firm;

 Informative selling cost;

 Nature of the demand curve: Demand curve of a monopolist slope downwards.

E. Oligopoly: 

Oligopoly has been derived from two words oligi and pollien where ‘Oligi’ means a few and ‘pollien’ means ‘sellers’. Oligopoly is defined as a market situation in which there are a few sellers or producers dealing in either the homogenous or differentiated products.

The oligopoly market is characterized as:

 Large number of potential buyers but only a few sellers,

 Homogenous or differentiated product,

 Buyers are small relative to the market but sellers are large and

 Barriers to entry of other firms in the market.

Monopsony

A market dominated by a single buyer. A monopsonist has the market power to set the price of whatever it is buying (from raw materials to labour). Under perfect competition, by contrast, no individual buyer is big enough to affect the market price of anything.