Acts as a major factor that influences the demand forecasting process. The demand forecasts of organizations are highly affected by change in their pricing policies. In such a scenario, it is difficult to estimate the exact demand of products.
iv. Level of Technology:
Constitutes an important factor in obtaining reliable demand forecasts. If there is a rapid change in technology, the existing technology or products may become obsolete. For example, there is a high decline in the demand of floppy disks with the introduction of compact disks (CDs) and pen drives for saving data in computer. In such a case, it is difficult to forecast demand for existing products in future.
v. Economic Viewpoint:
Play a crucial role in obtaining demand forecasts. For example, if there is a positive development in an economy, such as globalization and high level of investment, the demand forecasts of organizations would also be positive.
Oligopoly Market is characterized by few sellers, selling the homogeneous or differentiated products. Or say, that Oligopoly market structure lies between the pure monopoly and monopolistic competition, in which limited sellers dominate the market and have control over the price of the product.
Oligopoly market products are of two types:
1) Homogeneous product : The firms producing the homogeneous products are called as Pure or Perfect Oligopoly. It is found in the producers of industrial products such as aluminium, copper, steel, zinc, iron, etc.
2) Heterogeneous Product: The firms producing the heterogeneous products are called as Imperfect or Differentiated Oligopoly. Such type of Oligopoly is found in the producers of consumer goods such as automobiles, soaps, detergents, television, refrigerators, etc.
There are five types of oligopoly market :
1. Few Seller: limited sellers and many customers . Few firms dominating the market enjoy a considerable control over the price of the product.
2. Interdependence: one of the most important features of an Oligopoly market, in which, the seller has to be cautious with respect to any action taken by the competing firms..
3. Advertising: It is the advertisement which makes the oligopoly. Under Oligopoly market, every firm advertises their products, with the aim to reach more customers and increase their customer base. So completion tough and in race with each other.
4. Competition: As few players are there in the market hence genuine players only have intense competition. Thus, every seller keeps an eye over its rival and be ready with the counter attack.
5. Entry and Exit Barriers: The firms can easily exit the industry whenever it wants, but has to face certain barriers to entering into it. These barriers could be Government license, Patent, large firm’s economies of scale, high capital requirement, complex technology, etc.
6. Lack of Uniformity: There is a lack of uniformity among the firms in terms of their size, some are big, and some are small. Since there are less number of firms, any action taken by one firm has a considerable effect on the other.
Monopolistic Competition, there are a large number of firms that produce differentiated products which are close substitutes for each other. In other words, large sellers selling the products that are similar, but not identical and compete with each other on other factors besides price.
Features of Monopolistic Competition
1.Product Differentiation: This is one of the major features of the firms operating under the monopolistic competition, that produces the product which is not identical but is slightly different from each other. The products being slightly different from each other remain close substitutes of each other and hence cannot be priced very differently from each other.
2. Large number of firms: A large number of firms operate under the monopolistic competition, and there is a stiff competition between the existing firms. Unlike the perfect competition, the firms produce the differentiated products which are substitutes for each other, thus make the competition among the firms a real and a tough one.
3. Free Entry and Exit: With an intense competition among the firms, the entity incurring the loss can move out of the industry at any time it wants. Similarly, the new firms can enter into the industry freely, provided it comes up with the unique feature and different variety of products to outstand in the market and meet with the competition already existing in the industry.
4. Some control over price: Since, the products are close substitutes for each other, if a firm lowers the price of its product, then the customers of other products will switch over to it. Conversely, with the increase in the price of the product, it will lose its customers to others. Thus, under the monopolistic competition, an individual firm is not a price taker but has some influence over the price of its product.
5. Heavy expenditure on Advertisement and other Selling Costs : Under the monopolistic competition, the firms incur a huge cost on advertisements and other selling costs to promote the sale of their products. Since the products are different and are close substitutes for each other; the firms need to undertake the promotional activities to capture a larger market share.
6. Product Variation: Under the monopolistic competition, there is a variation in the products offered by several firms. To meet the needs of the customers, each firm tries to adjust its product accordingly. The changes could be in the form of new design, better quality, new packages or container, better materials, etc. Thus, the amount of product a firm is selling in the market depends on the uniqueness of its product and the extent to which it differs from the other products.
The monopolistic competition is also called as imperfect competition because this market structure lies between the pure monopoly and the pure competition.
Restaurants are a monopolistically competitive sector; in most areas there are many firms, each is different, and entry and exit are very easy. Each restaurant has many close substitutes—these may include other restaurants, fast-food outlets, and the deli and frozen-food sections at local supermarkets. Other industries that engage in monopolistic competition include retail stores, barber and beauty shops, auto-repair shops, service stations, banks, and law and accounting firms.
A cartel is defined as a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. In the U.S., cartels are illegal; however, internationally, there are no restrictions on cartel formation. The organization of petroleum?exporting countries (OPEC) is perhaps the best?known example of an international cartel; OPEC members meet regularly to decide how much oil each member of the cartel will be allowed to produce.
Oligopolistic firms join a cartel to increase and improve their market power, and members work together to determine jointly the level of output that each member will produce and/or the price that each member will fix. By working together, the cartel members are able to behave like a monopolist. For example, if each firm in an oligopoly sells an undifferentiated product like oil, the demand curve that each firm faces will be horizontal at the market price. If, however, the oil?producing firms form a cartel like OPEC to determine their output and price, they will jointly face a downward?sloping market demand curve, just like a monopolist. In fact, the cartel’s profit?maximizing decision is the same as that of a monopolist, as Figure reveals. The cartel members choose their combined output at the level where their combined marginal revenue equals their combined marginal cost. The cartel price is determined by market demand curve at the level of output chosen by the cartel. The cartel’s profits are equal to the area of the rectangular box labeled abcd in Figure . Note that a cartel, like a monopolist, will choose to produce less output and charge a higher price than would be found in a perfectly competitive market.
Once established, cartels are difficult to maintain. The problem is that cartel members will be tempted to cheat on their agreement to limit production. By producing more output than it has agreed to produce, a cartel member can increase its share of the cartel’s profits. Hence, there is a built?in incentive for each cartel member to cheat. Of course, if all members cheated, the cartel would cease to earn monopoly profits, and there would no longer be any incentive for firms to remain in the cartel. The cheating problem has plagued the OPEC cartel as well as other cartels and perhaps explains why so few cartels exist
According to the indifference curve approach, it is not possible for the consumer to say how much utility he derives from the consumption of a commodity, because utility is not a measureable magnitude.
But a consumer can compare two or more combi¬nations of goods and say which of them he likes best or whether he likes them all equally well. The Laws of Consumer Demand can be deduced from these preferences.
Suppose a consumer is asked to choose between the following two combinations:
a. 4 apples and 2 oranges
b. 2 apples and 3 oranges
He may prefer a to b or b to a or he may like both combinations equally well. In the last case we say that he is indifferent between them. It is not necessary at this stage to know how much utility is obtained from an apple or an orange. The consumer can compare the relative desirability of, or indifference between, two combinations of goods without knowing the exact amount of “utility” and “satis¬faction” obtained from each combination.
To show how Indifference Curves are constructed let us take the example of a consumer purchasing two goods only, apple and orange. He may prefer apple to orange but if orange becomes relatively cheap he may be induced to eat a few more