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Price Competition Versus Non Price Competition Economics Essay

When there is competition in organizations on the basis of change in price, it is recognized as price competition. Price competition can involve discounting the price tag on a product (or range of products) to increase its demand. Various forms of market indulge in price wars in order to earn a large market share and a profit percentage. As price of something increases or lowers, it leads to fluctuations in the demand of the merchandise of particular organizations. So all the companies always keep a watch on the marketplace makes of demand and offer, the produced equilibrium price, competition etc. in order to skim the marketplace.

Non price competition

When there exists competition in organizations based on factors other than price such as advertising, sales campaign, product differentiation, branding etc. , it is recognized as non-price competition.

Price competition vs. non-price competition

Price Competition

Non Price Competition

Competition between your firms predicated on price where one firm tries to overcome or match the price of the other.

Firm will try to be the lowest cost giver for the product in the market.

The firm will need to have the vision to react to the strategy of other organization very quickly.

High mix price elasticity must see more of price competition.

Here the companies compete with one another with the strong factors like product differentiation, quality of the merchandise etc.

The firm attempts to build consumer devotion such that it can sell its product to the maximum volume of consumers and increase its market show.

They promote recognition in the consumer for the differentiation of the product.

High own price elasticity must see more non price competition.

An increase in price comes with an inverse romance with the number demanded and a good relationship with the quantity provided i. e. an increase in price reduced the demand and increases the quantity offered and vice versa.

Determination of Equilibrium price

The market causes of demand and supply determine the equilibrium price. This equilibrium price becomes the foundation for organizations in perfect or imperfect competition to bill a price for their product. Thus the companies make an expense minimising production function

Figure 2: Equilibrium price: Supply and Demand forces

Supply_curve_shift

In the body, equilibrium price is p0 and equilibrium volume is QO i. e. when amount demanded is add up to quantity supplied equilibrium is achieved. These tips only show the equilibrium status but do not show the response of the change of variety demanded and given respect to price. Here comes the importance of elasticity of demand and offer.

ANALYSIS OF DIFFERENT MARKET SITUATIONS WHICH BRING ABOUT PRICE AND NON-PRICE COMPETITION

Elasticity and price and non-price competition play a vital role in identifying various types of market structure, their price, demand and supply, total revenue, condition of the demand curve etc. the marketplace structure can be delineated the following:

MARKET

Market Structure

Imperfect competition

Monopoly

Perfect Competition

Monopolistic

Oligopoly

Market is not merely a geographical appearance but it could be anyplace where buyers and retailers are in regular contact plus they have a perfect knowledge of price.

BASIC FEATURES OF MARKET

Very large number of buyers and retailers exist in a market.

Both homogeneous as well as heterogeneous products can be purchased in market.

Free flexibility (motion) of and services goods in market area.

Firms are absolve to enter and leave.

FORMS OF MARKET

Perfect competition

Monopoly

Monopolistic

Oligopoly

PERFECT COMPETITION

Perfect competition is market situation where large numbers of buyers and sellers exist. In the forex market, firm is a cost taker whereas Industry is the purchase price maker.

FEATURES OF PERFECT COMPETITION

Large amount of sellers and customers exist in perfect competition.

Homogeneous products are sold in this market where the price may increase or reduce but for the complete industry otherwise it will be a given price.

In this market, price remains consistent for two reasons

Homogeneous products

Perfect competition

Firms are absolve to enter and exit.

Price = average income = marginal earnings because of price uniformity.

Price does not have any role to learn due to homogeneous goods. Price remains homogeneous however, not constant. Example - stock market. Non-price competition is extremely hard as the merchandise are homogeneous, advertising, promotion and branding help the businesses to differentiate and create market in the market.

D S

P=AR=MR=D

S D

INDUSTRY FIRM

Figure 1. 1-Price dedication under perfect competition

MONOPOLY MARKET

It is a market situation in which a single seller is available with a huge number of customers and no close substitute is available of monopoly product.

FEATURES OF MONOPOLY MARKET

Single seller is accessible in monopoly market with large number of buyers.

Close substitutes are not available of the monopoly products as it may work as an obstacle for the development of the monopoly product.

Entry of new firm is very difficult in monopoly market. The existing monopoly power will need all legal as well as illegitimate concepts to stop the accessibility of new organizations.

Price discrimination is one of the most striking features of a monopoly market. It may be thought as charging different price from different customers for the same product based on segments of consumer, quantity to be purchased and levels of elasticity of demand.

Selling cost or cost of advertising campaign is negligible.

Demand curve facing a monopoly firm is downward sloping but less elastic and MR is always less than AR.

PRICE

MR AR=D

QUANTITY

Figure 1. 2-Demand curve under monopoly market

Price leadership is present in monopoly as the company can charge a high price and take the good thing about being a only seller nonetheless they can charge a reasonable price since it helps in long haul growth. Over time, new organizations may enter the marketplace and the existing firms market talk about may fluctuate. So in their own interest monopoly company charge a reasonable price.

MONOPOLISTIC COMPETITION

It is market situation where elements of both monopoly as well as competition coexist along and differentiated products can be purchased on the market.

FEATURES OF MONOPOLISTIC COMPETITION MARKET

Very large number of buyers and retailers exist. That is a digital market which is present in reality.

Differentiated or heterogeneous products can be purchased in the forex market. Each owner is providing different products from others creating a monopolist trend.

In the forex market, price always remains in a very close range as the goods are perfect substitutes of every other.

The demand curve facing the monopolistic competition market is again downward sloping but more flexible.

In this market MR curve is actually less than AR i. e. the additional revenue earned is often less than the average revenue.

Firms are free to enter and exit.

Price competition will there be in monopolistic competition market. Because of the option of close substitutes, a big change in price of one product influences the demand of other product.

Price

AR=D

MR

Quantity

Figure 1. 3-Demand curve under monopolistic competition

Non-price competition under this form of market is possible due to availability of close substitutes of the merchandise. The firm to be able to draw in more customers and keep them would contend with each other on the basis of non-price factors on promotional prominent i. e. advertisement etc. However, the elements of price competition are also within this form of market but the price always retains in a very close range.

Example, Once Coke increased its price from Rs. 20 to Rs. 22 to be able to contend with Pepsi.

OLIGOPOLY MARKET

It is market situation where few vendors exist with large number of buyers and both homogeneous as well as heterogeneous products are available. There is extreme competition among them as far as price and outcome policy can be involved.

FEATURES OF OLIGOPOLY MARKET

The number of sellers tend to be more than 2 and significantly less than or equal to 10.

Both homogeneous and heterogeneous products can be purchased.

Both collusive as well as non-collusive form of oligopoly market exists.

The demand curve in oligopoly market is very difficult to find out (Indeterminate demand curve).

There is non-price competition in collusive oligopoly and price competition in non-collusive oligopoly. The demand of other companies depends upon the price deviation of any of the existing firms. Until and unless the rival's reaction is not known when there's a change in cost, the demand curve can't be determined.

Let's discuss the idea of elasticity so that people can know about the different degrees of elasticity in various types of market.

ELASTICITY

Elasticity is the degree of responsiveness for a commodity to a change in its price. Elasticity actions the sensitivity of 1 variable to another. Whenever a consumer is supplying response to the purchase price change he is more elastic whereas if a consumer is not providing response to the purchase price change, he is less stretchy.

DIFFERENT TYPES OF ELASTICITY

Price Elasticity of Demand

Price elasticity of Supply

Income elasticity of Demand

Cross Elasticity

MEASUREMENT

Elasticity can be measured by following three methods

Proportion method/ratio method

Geometric method/point elasticity method

Expenditure or total outlay method

Terminology of elasticity

Term

Numerical measure of elasticity

Verbal Description

Price elasticity of demand(resource)

Perfectly or completely inelastic

Zero

Quantity Dd(supplied) does not changes as price changes

Inelastic

Greater than zero, significantly less than one

Quantity Dd(offered) changes with a smaller % as does price

Unit Elasticity

One

Quantity Dd(supplied) changes by exactly the same % as does indeed price

Elastic

Greater than one, but less than infinity

Quantity Dd(offered) changes by a larger % as will price

Perfectly, completely, or infinitely elastic

Infinity

Purchasers(sellers) are prepared to buy(sell) all they can at some price and none by any means at a straight higher(lower) price.

Income Elasticity of Demand

Inferior good

Negative

Qty dd lowers as income increases

Normal good

Positive

Qty dd boosts as income increases

Income-inelastic

Less than one

Less than compared to income increase

Income-elastic

Greater than one

More than compared to income increase

Cross Elasticity of Demand

Substitute

Positive

Qd of the right and price of a substitute are favorably related

Complement

Negative

Qd of some good and price of your complement are negatively related

COMPARISON OF Marketplaces BASED ON ELASTICITY

Market forms

Price elasticity of demand

Perfect competition

The demand in perfect competition is flawlessly elastic which means with or without change in price, variety demanded may increase or decreases to any extent.

Monopoly

The demand in monopoly market is less elastic. A change in price will not have an impact on the demand by much. As there is merely single vendor in monopoly market, customers do not have much options before them which means demand is less elastic.

Monopolistic

The demand is more elastic in monopolistic competition. It simply means that as soon as there's a change in cost, you will see a greater change in amount demanded. The demand curve facing a monopolistic competition is downward sloping but MORE ELASTIC.

Oligopoly

In oligopoly market, the demand curve can be both more stretchy and less elastic depending after the rival's reaction to change in cost.

CONCLUSION

In current market scenario, most firms compete based on non-price competition. Though there are some discrepancies in the costs costed by different companies, firms frequently like and follow non-price competition since it brings about consumer welfare as well as organizations profit in long run.

PART - II

I visited Reliance Fresh (a departmental store) to be able to conduct a research on floor cleaning detergents.

As I moved into the store I noticed that on the kept hand side there's a rack with five racks on which all the toiletries items are shown. Floor cleaning detergents are continued three upper cabinets of the rack. Adequate space is provided for the ground cleaning detergents plus they is seen easily from both attributes of the rack. Cup cleaning detergents are also put along with floor cleaning detergents. On the topmost shelf, DOWSIL which is the internal brand of reliance chemicals is putted. The store is promoting DOWSIL because the profit percentage is high when compared with other brands as it is a product of reliance chemicals. And they are providing a complementary floor cleaning brush with DOWSIL to be able to attract much larger number of customers. It is priced less than other brands available.

BRANDS

I observed six floor cleaning detergent brands that were available. They are really:

LIZOL

DOMEX

CIF

Easy off bang

Mr Muscle

DOWSIL perfumed floor cleanser(phenyl)

COMPANY

FLOOR CLEANERS

VARIANT

QUANTITY

AMOUNT

(Rupees)

RECKITT BENCKISER

LIZOL

BLUE

975ML

99. 00

BLUE

500ML

52. 00

PINK FRAGRANCE

500ML

54. 00

LEMON EXPLOSION

500ML

54. 00

BEACHPOWDER (LIQUID)

500ML

50. 00

HINDUSTAN UNILEVER

CIF

500ML

78. 00

250 ML

53. 00

120ML

27. 00

HINDUSTAN UNILEVER

DOMEX

WHITE

500ML

54. 00

WHITE

1 LTR

108. 00

HINDUSTAN UNILEVER

DOMEX 2IN 1

BLACK

500ML

50. 00

SC JOHNSON

MR. MUSCLE

(floor cleaner)

500ML

50. 00

RECKITT BENCKISER

EASY OF BANG

400ML

65. 00

RELIANCE CHEMICALS

DOWSIL PERFUMED

1LTR

66

2LTR

149

3LTR

250

I asked consumers some questions such as

How do you select your floor cleaning detergent?

Do you go by advert, if yes what are the features that attract you the most?

This helped me to come to these inferences:

People pass experimental advertising i. e. the advertising that actually show how their product is different from others and the offers that they are getting such as "buy 2 and get 1 free".

Price, presentation and product quality things for them however they have no idea much about the substances.

Here the demand of floor cleaners continues on increasing with the cost, packaging changes and the elegance of the advertisements.

In my observation I could say that the ground cleaning detergent market is an oligopoly market framework because there are just 6-7 main players within the market while considered independently. Entry is not too difficult but each brand is some other product in itself, hence even though businesses are competing with the other person each one is a monopoly alone.

ECONOMIC CONCEPTS BASED ON OBSERVATION

Price and non-price competition

All the brands compete with each other. The competition is price and non-price depending upon the elasticity. The brands mainly contend with brand differentiation. The different brands fight with presentation, new innovation and adverts. So here we can say the floor cleaning market is having mainly non price competition as the prices are relatively same. Alternatively, local in-house brands are rivalling on price; they can be putting themselves relatively cheaper than others to be able to increase their sales

The competition here decides the area and position of the firm which is known as as designer.

Elasticity of demand

The demand in floor cleaning detergents market is more elastic i. e. if one brand raises its price, demand for other brand rises as it is consumers behaviour to change to substitutes when price of a specific product boosts.

Packaging and product quality

The market talk about depends upon the amount of work the company places on in differentiating its product from the other ones. For instance when seen the differentiation LIZOL and DOMEX are to arrive many variants gives consumers a wide choice of variants according with their need. They may be centering more on presentation and product quality. This helps in increasing the demand of a particular brand. So we can say that here DOMEX has created its monopoly on the market till enough time another firm enters this very idea i. e. responds to it using its product with some new development in this section of the buyer to task its monopoly

When this happens the players on the market get into competition again presenting new product with some new difference.

Pricing strategy

Big brands such as DOMEX and LIZOL are following price skimming insurance policy because they are relatively charging high prices than other brands in order to skim the marketplace.

On the other hands, there are a few local brands such as DOWSIL which can be competing with other brands on price. They are pursuing price penetration plan. As compared to other brands, these brands are relatively cheaper.

CONCLUSION

This floor cleaning detergents market happens to be a good field to study the economic ideas like market composition, elasticity and competition, and cost factor.

According if you ask me, this segment of the marketplace is catering to the high income consumers, there may be non-price competition. Since here individuals are less-price hypersensitive and are damaged by the advertising or product development carried out by the organization. Hence, we do not see much price competition in this section. But there are some local players who are contending with other brands on the basis of price. Instead organizations catering to this segment only make an effort to price themselves as cheaply as is feasible to attract the utmost number of consumers.

In this study, I have tried my level better to touch up on the different financial aspects that are prevailing in the ground cleaning detergent market.

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