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    The difference between price and non price competition Essay

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    In economic sciences, market is defined as any topographic point where the Sellerss of certain peculiar goods and services meet with the purchasers of the same goods and services and a dealing can take topographic point amongst the two.

    Any market has two primary facets, which are demand and supply. Demand and supply are the most of import constructs of a market economic system.

    Demand is defined as the sum of goods or services that consumers will readily purchase at different monetary values within a given clip period, during which factors other than the monetary value are held changeless.

    Whereas supply is defined as the sum of goods or services that manufacturers are ready to sell at different monetary values within a given clip period, during which factors other than monetary value are held changeless.

    In this reply we will be looking at both the demand every bit good as the supply side of the market. Hence we will see both the manufacturer and the consumers ‘ point of position. From the consumers point of position we will be looking at the construct of snap while from the manufacturers ‘ point of position we will see the market construction every bit good as the monetary value and non-price competition that exists in it.

    Market Structure

    Interconnected features of a market, such as the figure and comparative strength of purchasers and Sellerss and grade of collusion among them, degree and signifiers of competition, extent of merchandise distinction and easiness of entry into and issue from the market. Four basic types of market construction are ( 1 ) Perfect Competition-Many purchasers and Sellerss, none being able to act upon monetary values ( 2 ) Monopoly-Single marketer with considerable control over supply and monetary values ( 3 ) Oligopoly-Several big Sellerss who have some control over the monetary values and ( 4 ) Monopolistic-Large figure of Sellerss sell differentiated merchandises which are close replacements for one another.

    Perfect Competition- A absolutely competitory market is one in which there is a big figure of purchasers and Sellerss of a homogeneous merchandise and neither a marketer nor a purchaser has any control on the monetary value of the merchandise. A absolutely competitory market is assumed to hold the undermentioned characteristic –

    Large figure of purchasers and sellers- The figure of Sellerss is assumed to be so big that the portion of each marketer in the entire supply of a merchandise is really little. Thus the houses are price-takers non price-makers.

    Monopoly- It is market state of affairs in which there is a individual marketer of a trade good of ‘lasting differentiation ‘ without close replacements. A monopoly house enjoys an absolute power to bring forth and sell a trade good. Monopoly houses excessively have to confront indirect competition ; there are at least two chief beginnings of indirect competition.

    One beginning of indirect competition is competition between monopoly goods and other goods produced by other monopolies and competitory houses for claiming a considerable portion in consumers ‘ budget.

    And the 2nd beginning of indirect competition is from the handiness and monetary value of inferior replacements.

    Oligopoly- It is a market dominated by a comparatively little figure of big houses. The merchandises they sell may be either standardised or differentiated. Part of the control that houses in oligopoly markets exercise over monetary value and end product roots from their ability to distinguish their merchandises. But market power besides comes from their sheer size and market laterality.

    Whether the Sellerss in an oligopolistic market vie against each other by distinguishing their merchandise, ruling market portion, or both, the fact that there are comparatively few Sellerss creates a state of affairs where each is carefully watching the other as it sets its monetary value. In economic science we refer to this pricing behaviour as common mutuality. This means that each marketer is puting its monetary value while explicitly sing the reaction by its rivals to the monetary value that it establishes.

    Monopolistic- It is a market in which there are many houses and comparatively easy entry. These two features are really similar to those of perfect completion. What enables houses to put their monetary values ( that is to be monopolistic ) is merchandise distinction. By somehow converting their clients that what they are selling is non the same as the offerings of other houses in the market, a monopolistic rival is able to put its monetary value at a degree that is higher than the monetary value established by the forces of supply and demand under conditions of perfect competition.


    Elasticity is defined as a per centum relationship between two variables, that is, the per centum alteration in one variable relation to a per centum alteration in another.

    Co-efficient of snap = Percentage alteration in Angstrom

    Percentage alteration in B

    Price Elasticity

    The measuring of sensitiveness of the alteration in measure demanded is to a alteration in monetary value in per centum footings is called the monetary value snap of demand. Demand monetary value snap is defined as a per centum alteration in measure demanded caused by 1percent alteration in monetary value.

    Harmonizing to economic experts there are three classs of monetary value snap ( Ep ) :

    1.Relative Elasticity of Demand

    Ep & gt ; 1

    This occurs when a 1percent alteration in monetary value causes a alteration in measure demanded greater than 1percent.

    2.Relative Inelasticity of Demand

    0 & lt ; Ep & lt ; 1

    Here the per centum alteration in monetary value is greater than the corresponding alteration in measure.

    3.Unitary Elasticity of Demand

    Ep = 1

    A 1percent alteration in monetary value consequences in a 1percent alteration in measure in the opposite way.

    There are two confining instances at the extremes of the snap graduated table –

    1.Perfect Elasticity

    Ep = a?z

    In this instance there is merely one possible monetary value and at that monetary value an limitless measure can be sold.

    2.Perfect Inelasticity

    Ep = 0

    Under this status the measure demanded remains the same regardless of monetary value.

    Cross Elasticity

    Cross snap or cross-price snap trades with the impact in per centum on the measure demanded of a peculiar merchandise created by a monetary value alteration in a related merchandise while everything else remains changeless. In economic science, there are two types of relationship – replacement good and complementary good.

    Substitutes are the same merchandises but are sold by different providers and one provider can be considered a replacement for the other.

    Complements are the merchandises that are consumed or used together along with one merchandise.

    The cross snap ( EA, B ) is a step of the per centum alteration in measure demanded of merchandise A resulting from a 1 per centum alteration in the monetary value of merchandise B. The general equation can be written as –

    Income Elasticity

    Measure of sale is a map of or does acquire influenced by the consumers ‘ income. Harmonizing to economic experts, income snap ( EY ) is a step of the per centum alteration in measure consumed ensuing from a 1percent alteration in income. The general equation can be written as –

    EY = % alteration in measure consumed

    % alteration in income

    Some merchandises will be demanded by consumers whose incomes are low, but as incomes rise and consumers ‘ feel “ better off “ they will switch ingestion to goods more commensurate with their new economic position. Commodities of this type are normally referred to as inferior goods.

    So, in the construct of income snap there are three classs –

    Income snap & gt ; 1: – Superior goods

    Income snap & gt ; 0 and a‰¤ 1: – Normal goods

    Income snap & lt ; 0: – Inferior goods

    Monetary value Competition

    Price competition involves viing houses seeking to crush each other in footings of the monetary values they sell their merchandise at. Firms viing in monetary values respond rapidly and sharply to their rivals ‘ monetary values. These houses try to capture a larger portion of the market by selling the merchandises at the lowest monetary value.

    Match and crush the monetary value of the competition. To vie efficaciously, need to be the lowest cost manufacturer.

    Must be willing and able to alter the monetary value often.

    Need to react rapidly and sharply.

    Rivals can besides react rapidly to your enterprises.

    Customers adopt trade name exchanging to utilize the lowest priced trade name.

    Sellers move along the demand curve by raising and take downing monetary values.

    Non Price Competition

    – Emphasize merchandise characteristics, service, quality etc. Can construct client trueness towards the trade name.

    – Must be able to separate trade name through alone merchandise characteristics.

    – Customer must be able to comprehend the differences in trade names and see them as desirable.

    – Should be hard / impossible for rivals to emulate the differences ( Patents ) .

    – Must advance the distinguishing characteristics to make client consciousness.

    – Monetary value differences must be offset by the sensed benefits.

    – Sellers shift the demand curve out to the right by emphasizing typical properties.

    Points of Difference between Price and Non-price Competition

    The major difference between monetary value and non monetary value competition is that monetary value competition implies that the house accepts its demand curve as given and manipulates its monetary value in order to seek and achieve its ends, while in non monetary value competition it seeks to alter the location and form of its demand curve.

    The non monetary value competition is a selling scheme in which one house tries to separate its merchandise or service from viing merchandises on the footing of properties like design and craft. The house can besides separate its merchandise offering through quality of service, extended distribution, client focal point, or any other than monetary value.

    In instance of monetary value competition the house tries to separate its merchandise or service from viing merchandise on the footing of low monetary value.

    Non Price competition involves promotional outgos, selling research, new merchandise development and trade name direction cost. The promotional outgos includes advertisement, adding staff, the location convenience, gross revenues publicity, vouchers, particular orders or free gift. Firm ‘s prefer non-price competition, inspite of extra costs involved it is normally more profitable than selling at lower monetary value and avoids the hazards of monetary value war.

    Although any house can utilize non monetary value competition, it is most common among Oligopolies and Monopolistically competitory houses, because houses can be highly competitory. In order to separate themselves they use non-price agencies.

    Major Factors act uponing Pricing Decisions –

    Organisational and Marketing Aims

    Types of pricing Aim

    Buyers perceptual experiences

    Supply and Demand is an economic theoretical account of monetary value finding in the market. In the competitory market the unit monetary value of the peculiar good will change until it settles at the point where the measure demanded by the consumer ( at the current monetary value ) will be the measure supplied by the manufacturer ( at the current monetary value ) , ensuing in an economic equilibrium monetary value and measure.

    Shop Visited – Big Bazaar, Vasant Square Mall

    Detailss of Display – The shampoo section was chiefly divided amongst 3 racks

    The show was as follows –

    1st Rack – Head and Shoulders, Clinic All Clear, Garnier Fructis, Clinic Plus, Vivel

    2nd Rack – Pantene, Loreal, Dove, Sunsilk, Fiama Di Wills

    3rd Rack – Nyle, Chik, Halo, Himalaya, Vatika

    Even a glimpse at the show is sufficient to province that the higher priced shampoos covered a greater every bit good as more distinguishable place to be seeable to the consumers. It was besides noticed that largely shampoo trade names of similar companies were unbroken togethar.

    The chief leaders in the shampoo section of the market were ITC, Hindustan Unilever, Loreal and Procter and Gamble.

    All these companies had more than one trade name in the market such as Hindustan Unilever – Dove, Sunsilk etc. Procter and Gamble – Pantene, Head & A ; Shoulder etc. Loreal – Loreal, Garnier etc.

    Not merely assorted trade names of different companies but each trade name excessively had assorted classs of shampoos such as beauty shampoo, anti-dandruff shampoo, shampoo for oily hair, shampoo for dry hair, shampoo for radiance, shampoo for colored hair, shampoos for childs etc.

    There were three chief sections for the differences in the class of shampoos but all the three sections were chiefly differentiated on the footing of monetary values more than quality because it was non much of an issue for the consumers to pay more for better quality.

    After analyzing the shampoo section in the market we got to understand that the shampoo market has got a monopolistic market construction. Monopolistic is one market in which there are many Sellerss and therefore entry of a house is comparatively much easier. Since it ‘s a monopolistic market hence they are prosecuting in both monetary value and non-price competitions seeking to distinguish the merchandise. For illustration sing monetary value competition – Chik came into market at the monetary value of Re.1 and even came up with shampoo sachets for 50p. And advertizements are besides illustrations of non-price competitions. And every bit far as non-price competition is concerned Loreal and Sunsilk are authoritative illustrations. But to be blunt trade names like Sunsilk, Pantene, Loreal vie both in monetary value and non-price competitions. But every bit far as low scope shampoos are concerned, such as Chik, Halo, Ayur etc. vie merely in monetary values.

    Hair attention is one such division in which consumers are really careful while exchanging trade names. By and large they do non as it affects the hair. And therefore keeping a good quality of merchandise sing this section is a basic component to pull new clients.

    PANTENE and DOVE has stood on that portion as there is a really less divergence of clients from these trade names. It has that attractive force power that its topographic point in the show shelf has remained unaffected.

    However in a monopolistic house the fringy gross should be equal to fringy cost in order to maximise its net income.

    Oligopoly- It is a market dominated by a comparatively little figure of big houses.

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