by Pricing under different market conditions refers to how firms fix prices based on the type of market structure they operate in. Market structure affects the level of competition, control over price, and demand conditions. The main market conditions are Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly. Each market has different pricing methods and degree of price control.
1. Pricing under Perfect Competition
Under perfect competition, there are a large number of buyers and sellers selling identical products. No single firm can influence market price. Price is determined by market demand and supply. Firms are price takers and sell output at the prevailing market price. If a firm charges higher price, it loses customers. In the long run, firms earn only normal profit.
2. Pricing under Monopoly
In monopoly, there is a single seller with no close substitutes. The monopolist has full control over price but demand limits pricing power. Price is fixed where marginal cost equals marginal revenue. Monopoly price is usually higher and output is lower compared to competitive markets. In India, public utilities follow regulated monopoly pricing.
3. Pricing under Monopolistic Competition
Under monopolistic competition, many firms sell differentiated products. Each firm has limited price control due to product differentiation. Firms fix prices based on cost, demand, and competition. Selling cost and branding play an important role. In the long run, firms earn normal profit due to free entry.
4. Pricing under Oligopoly
In oligopoly, a few large firms dominate the market. Pricing decisions are interdependent. Firms may follow price leadership, collusive pricing, or competitive pricing. Prices are often rigid due to fear of price war. In India, telecom and automobile industries show oligopolistic pricing behavior.
