UNIT 4 CONSUMER BEHAVIOUR IN

MARKET ECONOMY
Structure
4.1 Objectives
4.2 Introduction
4.2.1 Who is a Consumer?
4.3 Theory of the Consumer Behaviour
4.3.1 Maximisation of Satisfaction
4.3.2 Limited Money Income
4.3.3 Consumer Demand
[Link] Assumptions of Law of Demand
[Link] Price Elasticity of Demand
[Link] Factors determining Price Elasticity of Demand
4.3.4 Market and the Consumer
[Link] Perfect Competition
[Link] Monopoly
[Link] Monopolistic Competition
[Link] Oligopoly

4.4 Perfectly Competitive Markets

4.4.1 Features of Perfect Competition
4.4.2 Price in a Perfectly Competitive Market
4.4.3 Maximising of Profit by the Producer
4.4.4 Guided by the Conditions of a Perfectly Competitive Market
4.4.5 Dynamics of the Economic Theory

4.5 Pure Monopoly, Price and the Consumer

4.5.1 Features of Monopoly
4.5.2 Ceiling on a Monopolist
4.5.3 Perfect Competition and Pure Monopoly

4.6 Monopolistic Competition

4.6.1 Features of Monopolistic Competition

4.7 Oligopoly Market and Price

4.7.1 Features of Oligopoly

4.8 Let Us Sum Up

4.9 Key Words
4.10 Some Useful Books and References
4.11 Answers to Check Your Progress Exercises

4.1 OBJECTIVES
After studying this unit, the learner shall able to :
l make them aware regarding market conditions under which the consumer
benefit the most;
59
Consumer: The Basics l develop knowledge regarding consumer behaviour;
l make them able to distinguish between perfectly competitive and imperfect
market;
l provide them an exposure to understand pure monopoly, price and the
consumer; and
l make them aware regarding monopolistic competition, oligopoly market and
price.

4.2 INTRODUCTION
“A customer is the most important visitor on our premises; he is not
dependent on us. We are dependent on him. He is not an interruption
to our work. He is the purpose of it. He is not an outsider in our business.
He is o part of it. We are not doing him a favour by serving him. He
is doing us a favour by giving us an opportunity to do us.1”
It is evident that the ultimate aim of all the economic activities is consumption
of commodities, which are produced in an economy. Kenneth E. Boulding
has rightly stated that “A consumer may most conveniently be regarded
as a little firm at the final stage of the progress of production. He buys
consumers goods as a firm buys inputs, and like the firm he transforms
them into a final product whose worth may in some manner be estimated.
The final product of the consumer, however, is not physical product to
be seen, tested and handled. It is a psychological product, technically
known as ‘utility’.
“Just as a producer buys labour, land services and raw material and
transforms them into a physical product so a consumer buys food,
clothing and amusement, and out of them builds the edifice of his
satisfaction. Utility, therefore, is the ultimate product of all economic
activity, indeed in its broadest sense of all human activity, whatsoever.2’
Thus, satisfaction is the final goal of consumption of all commodities.
Like stated earlier “Under capitalism consumer is the king.3” As a matter
of fact capitalistic economy provides freedom to the consumer to spend his
income in accordance with his interests. This activity of the consumer shows
his preferences for commodities. These preferences in an economy decide,
regulate and affect the size and shape of production and its quantity to be
produced. Thus, the producers produce only those commodities, which, are liked
or preferred by the consumers. The consumers, therefore, provide direction to
the producers regarding production of commodities to be made by them. From
this point of view the consumer is the king and a sovereign who reigns over
the whole capitalistic economy. But in practice the consumer is not so despotic
a monarch as he is supposed to be. At least, he is a constitutional monarch
who reigns but does not rule because there are several limitations, which impair
the consumer’s sovereignty. In modern time consumer’s sovereignty has become
very much limited.
“Consumer interest is basically related to consumer behaviour that is
which, when, why and how people buy goods and services and consume,
1
Attributed to Mahatma Gandhi
2
Kenneth, E. Boulding, Economic Analysis, p.614
3
60 Frederic Benham, Economics, p.156
it has been implicit in marketing since its inception.4” Consumers usually Consumer Behaviour in
Market Economy
tend to improve their buying practices by experience. This method however
would involve a lot of wastage, considering the variety of products marketed
today. These are so numerous that even one product a day for trial proves
too expensive if it is not like by the family.
The key to ensure consumer satisfaction lays in under-standing the consumer
- his likes and dislikes, his expectations and motivations, in short it may be
called as “Consumer Behaviour.”
It may be stated that consumer behaviour is a function of the individual involved
in the product category and the current situation. Each consumer is different
in the sense that his preference for any product such as food, clothing, housing,
television, washing machine, refrigerator etc. differs from others. Every consumer
spends some time in evaluating a product before buying it. Because of this reason,
consumers’ behaviour differs and this difference is seen between consumers while
buying different goods. The consumers’ behaviour while, purchasing a product
depends on the situation at that time. For example the attitude of a housewife,
while purchasing provisions for home in the company of her husband will differ
as compared to her attitude when she purchases the same commodities in the
company of her children.
Example for the awareness of consumer behaviour
“Some years ago the Onion prices in Delhi hit the roof, that was the
time when several consumer groups gave a call for boycott of onion stop
buying onions and the prices will automatically fall, they said no one
listened the queues in front of Super Bazar Vans , which were selling
Onions, only lengthened. Another one example of Bhopal Gas Tragedy-
environment groups gave a call for boycott of Union Carbide Products.
This, they said, would force the company to compensate the victims
adequately and quickly.”
The buying behaviour of the consumers is influenced by a number of factors
such as socio-economic environment of consumers, geographical location, cultural
environment, literacy level, occupation, marketers efforts, exposure to media,
the way consumer uses the products etc. The buying behaviour of individuals
in every community differs from each other. Like buying behaviour of consumers,
the consumers’ behaviour is influenced by a number of factors such as personal
factors of the individuals, cultural factors, psychological factors, consumers’ social
environment, information from various sources etc.

4.2.1 Who is a Consumer? [ Section 2(1)(d)]

Defining “who is a consumer” is central to the interpretation and implementation
of the Act. The Oxford Dictionary, defines a consumer as “a purchaser
of goods or services” whereas in Black’s Law Dictionary, it is explained
to mean, “one who consumes, individuals who purchase, use, maintain
and dispose of products and services.”
In Section 2 (1) d, the Act has carefully, and in great detail defined that,
“Consumer” means any person who:
4 R.C. Agrawal and Meenu Agrawal, ‘‘Economic Analysis of Consumer Behaviour and
Consumer Protection’’, in ‘Consumer Behaviour and Consumer Protection in India’
(Edited), 2006, P, 138 61
Consumer: The Basics i) Buys any goods for a consideration which has been paid or promised
or partly paid and partly promised, or under any system of deferred payment
and includes any user of such goods other than the person who buys such
goods for consideration, when such use is made with the approval of such
person, but does not include a person who obtains such goods for resale
or any commercial purpose.
This point may be explained by quoting few cases:
In Mohan Sharma v. Chandigarh Bottling Co.5 The complainant purchased
5 crates of Limca for Rs. 440 for serving the same to the guests on marriage
of his daughter. After consuming the drink the guests were taken ill and starting
vomiting. The bottles were got examined and found that some foreign particles
and fungus were therein. The District Forum directed the refund of the amount
paid for and Rs. 200 as compensation. In appeal state commission increased
the compensation to Rs. 5000.
In another case, Akhil Bhartiya Grahak Panchayat v. M/s Meghna Metals
& Another 6, one complaint purchased one Prestige Cooker manufactured by
opposite party. In spite of special Gasket –system for safety in the cooker,
the cooker burst and the same resulted in damage to the right hand of the
complainant’s wife. The opposite party was directed to pay compensation of
Rs. 1,00,000 and to reimburse the medical bills.
A person got allotted a constructed house on Hire-Purchase system by
Gorkhpur Development Authority. It was found that sub-standard materials
have been used and the house is not upto the mark. He is a consumer and
can complaint for the same before consumer court against Gorakhpur Development
Authority.
Further, the Act goes on to add that consumer means any person who:
ii) Hires or avails of any services for a consideration which has been paid
or promised or partly paid and partly promised, or under any system of
deferred payment and includes any beneficiary of such services other than
the person who hires or avail of the services for consideration, when services
are availed of with the approval of the first mentioned person but does
not include a person who avails of such services for any commercial
purpose. The term ‘Service’ has been defined under Sec 2 (1) (0). It
includes service of any kind rendered for a consideration.
In society there are so many fields in which services are rendered by individuals,
institutions whether private or statutory specially by Banks, Telephone Department,
Post Offices, Insurance, whether life or general, Railways, Doctors, Caterers,
Contractors, Transport Operators, Engineers, etc. for consideration. Persons
availing or using services of them are consumers.
In Union of India v. Mrs. S. Prakash7, it was held that the subscriber of
telephone is a consumer as the rental charges paid to the Central Government
is the consideration for the services rendered by the Tele-communication
Department.

5 (1995) III CPJ 296

6 (1994) I CPJ 453
7 (1994) I CPJ 307
62
In Nagpur Improvement: Authority v. T.D. Vankhede8, it has been decided Consumer Behaviour in
Market Economy
that beneficiaries are consumers.
In LIC v. BS Reddy9, the National Commission decided that a service of Life
Insurance Company is within the purview of the Act. The supply of water by
Municipal Corporation is also service. So supply of contaminated water is
subject of this Act.
In Spring Meadows Hospital v. Harjot Ahluwalia10, it has been decided
that the patient and his relatives who are in the service of the patient are
consumers. So mother and father of ailing son getting treatment are also
consumers.
A consumer comes in the following heads:
1) Buyer of goods
2) User of the goods
3) Hirer of services: A customer of a Bank is a consumer. A person who
obtains Bank Draft from a Bank is a consumer. A person who hires services
of a caters in the marriage is consumer. A person after buying ticket from
Railway window travels by train is a consumer.
In Union of India v. Mrs. S. Prakash, it has been held that the subscriber
of telephone is a consumer. As the rental charges paid to the Central
Government is the consideration for the services rendered by the Tele-
communication Department11.
4) Beneficiary of services, and
5) Buyer for earning his livelihood.
In this regard, the Supreme Court has observed, “It is in two parts. The
first deals with goods and the other with services. Both parts first declare
the meaning of goods and services by use of wide expressions. Their ambit
is further enlarged by use of inclusive clause. For instance, it is not only
purchaser of goods or hirer of services but even those who use the goods
or who are beneficiaries of services with approval of the person who
purchased the goods or who hired services are included in it. The legislature
has taken precaution not only to define ‘complaint’, complainant’, ‘consumer’
but even to mention in detail what would amount to unfair trade practice
by giving an elaborate definition in clause ® and even to define ‘defect’
and ‘deficiency’ by clauses (f) and (g) for which a consumer can approach
the Commission.”
The Supreme Court has further observed, “The act thus aims to protect
the economic interest of a consumer as understood in commercial sense
as a purchaser of goods and in the larger sense of user of services. The
common characteristics of goods and services are that they are supplied
at a price to cover the costs and generate profit or income for the seller
of goods or provider of services. But the defect in one and deficiency in
other may have to be removed and compensated differently. The former
is, normally, capable of being replaced and repaired whereas the other may
be required to be compensated by award of the just equivalent of the value
or damages for loss.
8 (1994) I CPJ 29
9 (1991) I CRP 144
10 (A.I.R 1998 SC 18018
11 (1991) I CPJ 307 63
Consumer: The Basics
4.3 THEORY OF CONSUMER BEHAVIOUR
Consumers behave in the market in a particular fashion. A brief description
of this aspect will be useful to appreciate the market which can be called
consume-friendly.
Consumer behaviour is a function of the individual involved, the product category
and the current situation. Each individual is different in the sense that his /her
preference for any product such as food, clothing, housing etc., differ from
another. Every one of them spends different time evaluating products before
purchasing them. Because of different consumer behaviours, difference is
observed between consumers while purchasing different goods the theory of
consumer behaviour is affected by following aspects.

4.3.1 Maximisation of Satisfaction

The principle assumption upon which the theory of consumer behaviour and
demand is built is that a consumer attempts to allocate his/her limited money
income among available goods and services so as to maximise his/her satisfaction.
This is known as “Maximisation of Satisfaction. In order to understand their
behaviour of consumer, it is necessary to remember that goods and services
have wanted satisfying property. For example, water has the thirst quenching
property and food has hunger satisfying qualities. When a payment is to be
made for procuring water or food, a consumer must know the mechanism to
allocate the money the purchase of these items.

4.3.2 Limited Money Income

If there were an unlimited pool of resources, there would be no need for
economising. Consumers can go on buying things without caring for the possibility
of over spending. Such a state, however, does not exist even for the richest
members of our society. The limited financial resources constrain and determine
consumer behaviour in the market. Consumers usually try to spend the amount
at their disposal in a way that yields maximum satisfaction. This involves exercising
choice.

4.3.3 Consumer Demand

Demand for a commodity depends mainly on its price, other things being equal.
Demand is the quantity of a commodity that a consumer is willing and able
to buy, at each possible price during a given period of time. Demand for a
commodity may be either with respect to an individual or to the entire market.
When the price of a commodity is high, a consumer demands less of it. On
the other hand, demand increases when the price is low. This is a general
tendency one observes in a market. It is known as the Law of Consumer
Demand. Law of demand states the inverse relationship between price and
quantity demanded, keeping other factors constant. This law is also known as
the “First Law of Purchase’.
[Link] Assumptions of Law of Demand
1) Prices of substitute goods do not change
2) There is no expectation of change in price in the future
64 3) Income of the consumer remains the same
4) Tastes and preferences of the consumer remain the same Consumer Behaviour in
Market Economy
5) Prices of complementary goods remain constant
Table 4.1
Price (in Rs.) Quantity Demanded (in Units)
5 1
4 2
3 3
2 4
1 5
Table shows that more and more units of commodity are Demanded when price
of the commodity falls.
[Link] Price Elasticity of Demand
Sometimes, the demand for a product is so sensitive or responsive that even
a small change in price will bring about a relatively large change in quantity
demanded. It is, however, possible that the demand change in price may not
be very sensitive, so that even if it is considerably demanded. The change
in quantity demanded due to a change in price is known as elasticity
of demand or more correctly, price elasticity of demand. If a given
percentage change in price brings about a larger percentage change in quantity
demanded, the demand for the product is said to be elastic. On the other hand,
if a given percentage change in price brings about a smaller percentage change
in quantity demanded, the demand for the product is said to be inelastic. There
are some commodities such as food and cloth which a consumer needs more
than the other types; liking buying car. It is observed that in case of necessaries
such as food or cloth, quantity demanded does not change much when the
price changes. Thus, such items have a low price elasticity of demand whereas
commodities whose demand varies greatly with change in price have a high
elasticity of demand. Thus, Price Elasticity of Demand may be defined as
the degree of responsiveness of demand for a commodity with reference
to change in the price of such commodity. Price Elasticity is may be
calculated using the following formula:

Percentage change in demand

Price Elasticity of Demand = ————————————
Percentage change in Price

In other words, elasticity of demand can be defined in the following way:

Proportional change in quantity demanded divided by proportional
change in price to be paid.
[Link] Factors determining Price Elasticity of Demand
1) Nature of goods
2) Availability of substitutes

3) Alternative uses 65
Consumer: The Basics 4) Share in the consumer’s budget

5) Time factor

6) Possibility of postponement

7) Expected change in price

4.3.4 Market and the Consumer

Marketing provides the link between the producer and the consumer of goods
and services. It involves a number of necessary functions performed to bring
goods to the consumer. The concept of ‘market’ has come a long way from
the barter system to selling what could be produced and made available and
now totally geared to the needs of the consumers. In fact, today it has extended
its functions not only within the countries but globally as well. In developed
countries, the concept of gearing marketing to consumer needs is a common
practice, because consumers are literate and informed well enough to dictate
their choices to the market. The marketing environment in India is still a scattered
and protected one. By and large, it has been a seller’s market which has made
business insensitive to consumer interest or the need for providing consumer
satisfaction. Due to their attitude, perceptual product shortages (natural and
created) have to be faced by consumers. However, marketing has been to draw
a lot of attention now, with the increasing competitiveness that has entered the
markets. Today, the increasing list of companies and firms trying to draw
consumer attention to their varied products is mind boggling. The consumer
mostly comes in contact with the retail markets as he is involved in the direct
purchase of tangible goods and services for family and household consumption.
The market presents its goods and services to the consumers through various
kinds of outlets.
Kinds of Outlets
1) Wholesale outlets 2) Retail store
3) Cooperatives 4) State emporia
5) Specialty store 6) Convenience store
7) Variety store 8) Department store
9) Discount store 10) Door to door selling
11) Vending 12) Selling by phone
13) Mail order / online selling 14) Black marketing

In economic theory, one comes across four types of market situations in which
consumer’s freedom can be assessed. The main forms of market structure are
as follows:

FORMS OF MARKET STRUCTURE

  

66
 Consumer Behaviour in
[Link] Perfect Competition Market Economy

It refers to a market situation where there are very large number of buyers
and sellers dealing in a homogeneous product at a price fixed by the market.
In the perfectly competitive market, sellers sell a homogeneous product at a
single uniform price. The price is not determined by a particular firm but by
the industry. In reality, perfect competition has never existed. The closest example
we may have such kind of market can be market for agricultural goods (wheat
and rice). In case of wheat, there are numerous buyers and sellers. As a result,
no single buyer and seller can significantly affect the market price of wheat.
[Link] Monopoly
The term monopoly means a ‘single seller’. Monopoly is a one-firm industry.
The market structure of a product is termed a monopoly when it has the following
three characteristics: (a) one seller (b) No close substitute and (c) No entry
of new firms)
[Link] Monopolistic Competition
Monopolistic competition refers to a market situation in which there are large
numbers of firms which sell closely related but differentiated products. Markets
of products like soap, toothpaste, AC etc. are examples of monopolistic
competition.
[Link] Oligopoly
The term oligopoly is derived from two Greek words: ‘Oligi’ means few and
‘Poly’ means to sell. Oligopoly is a market structure in which there are only
a few sellers (but more than two) of the homogeneous or differentiated products.
So, oligopoly lies between monopolistic competition and monopoly. Oligopoly
refers to a market situation in which there are a few firms selling homogeneous
or differentiated products. Oligopoly is, sometimes, also known as ‘competition
among the few’ as there are few sellers in the market and every seller influences
and is influenced by the behaviour of other firms. Markets for automobiles,
cement steel etc. are the examples of oligopolistic market.
Types of Oligopoly
Pure Perfect Imperfect or Differentiated Collusive Non-Collusive
Oligopoly Oligopoly Oligopoly Oligopoly

Check Your Progress 1

1) What is the meaning of oligopoly?
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2) Write a few lines on each of the following
a) Law of Demand
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...................................................................................................... 67
Consumer: The Basics b) Price Elasticity of Demand
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c) Monopolistic Competition
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4.4 PERFECTLY COMPETITIVE MARKETS

4.4.1 Features of Perfect Competition
a) Large Numbers of Buyers and Sellers
Perfect competition describes a market situation in which there is no rivalry
among suppliers. Buyers do not compete among themselves for goods and
services. This situation implies that sellers do not worry if they are unable to
sell their products. On the other hand, consumers apprehend that they may
not get the commodities they purpose to buy.
Every market participant, whether buyer or seller, regard price as given. While
it is true that aggregate behaviour of sellers and buyers affects the price, the
same is not taken into account while making a production or consumption
decision. Individual buyers and sellers accept the price prevailing in the market
without question. Sometimes, economists try to put forward the ‘Price Taking
assumption’ by stipulation that in a competitive market, every economic agent
is very small to the market as a whole. Therefore it cannot exert a perceptible
influence on price.
A little elaboration of this point may help. In order to see the basic function
of the price in a perfectly competitive market, it is necessary to understand
the sale and purchase activities in weekly markets. An examination of price
charged in these markets in respect of many commodities will indicate the pricing
pattern. Take the example of vegetable prices. All buyers pay the same price
to sellers without bargaining. Why such a feature? It is because, a single seller
cannot charge a higher price as nobody will purchase from him/her. Knowing
this, he does not deviate from the price charged by others selling the same
commodity in the market. This situation is described above as a ‘Price Taking
Behaviour’.
b) Homogeneous Products
An important feature of a perfectly competitive market is that the product being
sold by the various firms (or sellers) must be homogeneous or identical in the
eyes of the buyers. The products are homogeneous in the sense that they are
perfect substitutes from the buyer’s point of view, and their cross elasticity is
infinite. Since the product is homogeneous, no seller can charge a price even
slightly above the ruling market price, because if he does so, he will lose all
his customers. There are many firms operating in the market, no one firm is
in a position to exert any influence on price. Further, since the product is
homogeneous, there cannot be price differences in the market.
68
c) Free mobility of Resources Consumer Behaviour in
Market Economy
The existence of perfect mobility of the factors of production is another condition
for ensuring the factors of production should be free to move into any use or
industry which they consider profitable for themselves. They are also free to
come out of any use or industry it they consider their remuneration in that use
or industry inadequate. The existence of perfect mobility of factors is essential
for the fulfillment of the first condition of perfect competition, namely, the
existence of a large number of firms in the market.
d) Perfect Knowledge of the Market
Perfect competition implies perfect knowledge on the part of buyers and sellers
regarding market conditions. It is assumed that the buyers know the nature of
the product as well as the price at which it is sold. No buyer will be prepared
to pay a price higher than the ruling price. The seller must have perfect knowledge
of the potential sales at various price levels and also perfect knowledge of cost
behaviour. Factory owners and business firms should have compete information
regarding alternative employment possibilities or resources and also of profit
margins in different industries. Imperfect knowledge leads to wrong resource
allocation and income distribution. Too many producers may enter a particular
industry and may make unwarranted expansion of plants, etc.
e) No need of Advertisements
Perfectly competitive markets have no place for advertisements and sale
campaigns because sellers and buyers have the knowledge of the market price.
Nobody can misguide to the buyers. So, selling costs are ruled out in a perfectly
competitive market.
f) Free entry and exit of firms
This feature of perfect competition is that there should be complete freedom
for firms to enter into or leave the industry whenever they choose to do so.
Freedom to enter means that fresh blood shall be allowed in the industry. As
such, there shall be many firms in the industry and each firm shall be small
in size, producing only a very small portion of the total output. If some firms
are incurring losses, they might leave the industry. Most important thing is that
in this competition, no firm is in a position to exercise any monopolistic control
on the market.
g) Cut-throat competition
Competition implies rivalry in buying and selling a commodity. Buyers compete
among themselves to buy the commodity. They should not be able to combine
or co-operate. If they combine, they can reduce the price. But in a perfectly
competitive market there are so many buyers that it is difficult for them to join
together. Sellers too compete among themselves to sell their stock of goods.
If a group of sellers join together, they can raise the price of the product. But
whenever the market is perfectly competitive there is no possibility of combination
or co-operation among buyers and sellers. Thus, in a perfectly competitive
market, competition among buyers and sellers is like a cut-throat competition.
h) Firms cannot fix the price of the commodities
The price in the perfectly competitive markets determined by the market forces
of demand and supply. It is determined by the combined actions of all the buyers
and sellers taken together. Neither any buyer nor any seller is in a position 69
Consumer: The Basics to influence or alter the market price. The individual firm has to accept the
price fixed by the market. Because, an individual under perfect competition has
a price line or demand curve which is perfectly elastic?
i) Same price in all markets
In a perfectly competitive market, at any particular time, there should be only
one price for the product. The price of the product in the market is the result
of the combined influence of all the firms in the industry; and once a price
is determined, each one of the firms takes it as given and adjusts its own output
to that price. Each seller adjusts his net sales and each buyer his purchases,
without consideration of any possible effect of his actions upon the market price.
A competitive firm can sell as much as it can produce, without in any way
affecting the price which it receives. Similarly, every buyer also knows that he
is purchasing so small quantity that it will have no influence upon the market
price.
j) Ignoring transport costs
Perfectly competitive markets ignore transport costs. It assumes that the various
firms work so close to each other that there are no transport costs. But in
actual, two similar products are not considered homogeneous unless they happen
to be in the same place. If two similar products happen to be at two different
places, their prices will also differ because of transport costs. As pointed out
above, the existence of a single, uniform price is an essential feature of a perfectly
competitive market, and a single, uniform price for the same product cannot
exist in the market if transport costs are taken into account.
k) No government regulation
Under perfect competition there is no government intervention in the market.
Thus tariffs, subsidies, price control, rationing of production or demand etc. are
ruled out. The government intervention in any form undermines competition and
thus makes the market imperfectly competitive.
4.4.2 Price in a Perfectly Competitive Market
As described above, price in a competitive market is given to buyers and sellers.
This means that neither the consumer nor the seller has a say over the price
of a commodity in the market. Such a price is acceptable to sellers and buyers
because they cannot do better by going for another price. In order to appreciate
this idea, take a seller who wishes to charge a price higher than that prevailing
in the market. The force of market competition would ensure that the seller
in question will end up selling nothing. This will happen because consumers will
not pay more when the same commodity is available in the market at a lower
price. Another extreme situation will arise in case a seller decides to reduce
the price. Every buyer will try to make purchases from such a seller. A
consequence of this will be failure of the seller in meeting the demand.

Box 4.1: Total and Marginal Revenue

Remember the meaning of the following terms; you will understand the
contents of the unit better.
i) Total revenue refers to payment received by a producer when the
price of a commodity is multiplied by the number of units sold.
Suppose the price of a Maruti Car is Rs. 2 lakh. At the end of
70
 Consumer Behaviour in
a particular day, a dealer sold 10 cars. We say that the total revenue Market Economy
received by the seller is Rs. 20 lakh (Rs. 2 lakh  10)
ii) Marginal Revenue means an increase in total due to the sale of an
extra unit of output. Suppose for example, the seller got Rs. 20 lakh
after selling 10 cars and Rs. 21.9 lakh on selling 11 cars. In this
example, the marginal revenue is Rs. 1.9 lakh.
iii) Average Revenue: to understand this, take the following example.
A seller received Rs. 20 lakh after a sale of 10 cars. The average
revenue is Rs. 2 lakh in this case.

Extend similar arguments to appreciate terms such as total cost, marginal costs
and average cost.

4.4.3 Maximising of Profit by the Producer

In perfectly competitive market, the goal of all firms is profit maximisation. The
other goals, such as sales revenue maximisation, balanced rate of growth
maximisation, or satisfying are not pursued under perfect competition. Just as
the consumer maximises his/her satisfaction, a producer aims at maximising profit.
The price that prevails in a perfectly competitive market satisfies both the
consumer and the producer. This means that the market price forces the producer
to adjust his/ her production schedule to derive maximum satisfaction from the
commodities consumed.

4.4.4 Guided by the Conditions of a Perfectly Competitive

Market
A product adjusts the production plan in such a way that the price covers average
cost of production. Thus, in a perfectly competitive market, price of a commodity
is equal to the minimum average cost of production. When this condition is
not met by a producer, the competition will now allow such a producer to
remain in the market. The consumer has to pay the price that is determined
by the market if he wishes to consume the commodity.

Box 4.2: Firm and Industry

There need be no confusion over the terms, firm and industry. For the
purpose of the present unit, it will be sufficient to remember that a single
enterprise producing a commodity is termed as a firm. All such enterprises
put together may be known as industry of the product produced. For
example, bi-cycles are produced by different firms (say, companies). All
these companies put together can be understood to constitute the bicycle
industry.

4.4.5 Dynamics of the Economic Theory

An important message of economic theory to be remembered is: a competitive
firm cannot survive unless it minimises its costs.
This logic also gets extended to production activities of the economy as a whole.
The implication of this is far reaching. Not only does each firm try to minimise
costs, but also each industry in the economy is forced to follow such a path. 71
Consumer: The Basics As a consequence, the economy is in a position to get its output at the lowest
possible cost. It is important to remember here that economic theory visualises
the possibility of an economy having more output under perfect competition than
in any other market situation.
Remember that characteristics given above are not encountered frequently in
the real life situations. In order to appreciate the idea behind the functioning
of a perfectly competitive market, you may observe the process of buying and
selling of agricultural products. No doubt, there will be some difficulties in
equating these activities with the characteristics of perfect competition, but
similarly of functioning between the markets is striking.
Check Your Progress 2
1) Briefly describe the main features of perfect competition.
................................................................................................................
................................................................................................................
................................................................................................................
2) What do you understand by “Total Revenue and Marginal Revenue”.
................................................................................................................
................................................................................................................
................................................................................................................

4.5 PURE MONOPOLY, PRICE AND THE

CONSUMER
The word Monopoly is made up of two syllables  Mono and Poly. Mono
means single while poly implies selling. Thus, a pure monopoly is said to
exist if there is one and only one seller in the market. If in a market there
is one single seller of a product and there is no competition at all, the situation
will be one of pure or perfect or absolute monopoly. There are no rivals to
this producer. Taking advantage of the absence of direct competitors, the
monopolist divides the market and charges different prices, uses block prices
or volume discounts to raise additional total revenue. Being the single producer
in the market, a monopolist can exercise control over output and price. This
feature is described as “Monopolist Having Market Power”.
In 1969, the Monopolies and Restrictive Trade Practices Act was passed
with the objective to prevent concentration of economic power and to control
monopolistic and restrictive trade practices. The provisions of the Act, proceeded
on the assumption that if dealers, manufactures of producers could be prevented
from distorting competition, the consumers would get a fair deal. The emphasis
was on competitive market and it was thought that the competitive market would
provide the required protection to the consumers. But that was only partly true.
There is now greater recognition that, consumers need to be protected not only
from the effects of restrictive trade practices but also from the practices which
are resorted to by the trade and industry to mislead or dupe the consumers.
With the passage of time, it was noticed that the objectives of the MRTP Act
could not be achieved to the desired extent.
Thus in 1977 Government Constituted a High Powered Committee under the
Chairmanship of Rajinder Sachar, J., to review the Monopolies and Restrictive
72
Trade Practices Act, 1969 and to suggest measures to make it appropriate and Consumer Behaviour in
Market Economy
effective in the era of globalisation of commercial transaction of the commodities.
The Sachar Committee suggested that the unfair trade practices, like hoarding,
the supply of hazardous products, misleading and deceptive advertisements and
false misrepresentations, bargain sales, bait and switch selling, offering of gifts
and prizes with intention of not providing them, conducting promotional contests,
supplying goods that do not comply with safety standards and hoarding and
destruction of goods should be prohibited. With the globalisation of world
economy, it became necessary to encourage competition to foster speedy
economic development.
In light of these recommendations, the MRTP Act was amended in 1984 to
incorporate inter alia, new provisions for the regulation of unfair trade practices
e.g. false representation, misleading advertisements, bargain sales, bait and switch
selling, etc. Despite these new provisions the ultimate consumers could not be
protected from defective goods or deficient services, overcharging of prices and
unscrupulous exploitation.
This paragraph may be explained by quoting few cases on Misleading
Advertisements, Defective Goods and Deficiency of Services: Need to
control Misleading Advertisements promising Weight Reduction: NC
In response to a case filed by a consumer against a Body Care programme
alleging that even after paying Rs. 10,500 and undergoing the treatment, she
did not lose weight, the District Forum in Bangalore had directed that the money
be refunded to the consumer and also a compensation of Rs. 25,000 be paid.
When this was confirmed by the State Commission, the opposite party filed
a revision petition before the National Consumer Disputes Redressal Commission.
Dismissing it, the apex consumer court said: “We entirely agree with the
findings recorded by the Fora below. Such tempting advertisements,
giving misleading statements with regard to the alleged treatment, are
increasing day-by-day and are required to be controlled so that persons
may not be lured to pay large amount to such bodies in a hope that
they can reduce their weight by undergoing the so-called treatment. The
amount awarded by the fora below is also on the lower side.”12
National Commission comes down on Surrogate Advertisements
This is one of those rare cases where the consumer courts used the provision
for issuing corrective advertisements, provided under Section 14 of the CP Act.
The order has its origin in a complaint filed by Mumbai-based consumer group
Mumbai Grahak Panchayat against surrogate liquor advertisements on Western
Railway coaches. In response, the Maharashtra State Commission directed
United Breweries to issue corrective advertisements for one week and the
Railways to display them prominently on coaches of Western Railway. The
corrective advertisements were to say:
“Keep liquor away from young generation” and “India’s number 1-only
natural fruit drink” and “Nimbu paani, nariyal paani, yehi hai apna
alag andaz”.
While examining the appeal filed by United Breweries against this, the National
Commission referred to the fact that the Advertising Standards Council of India
12
United Breweries Limited vs. Mumbai Grahak Panchayat, FA No. 491 of 2005 73
Consumer: The Basics (ASCI) had also asked for the withdrawal of two of these advertisements. These
advertisements appeared to be surrogate advertisements for an alcohol product
brand and hence contravened Chapter 1.4 of the ASCI’s code. The ASCI had
commented that the mention of the word ‘soda’ in an inconspicuous manner,
while boldly stating the brand name “Bagpiper” with the baseline, “India’s
largest, World’s No. 3’’ was misleading by its ambiguity and hence contravened
the code.
Criticising the advertisements, the apex consumer court observed that the
advertisement had referred to London Pilsner soda, and proclaimed “ab cold
drink out”. Enquiries by the complainants had, however, shown that the company
had come out with 250 ml bottle of London Pilsner beer and there was no
soda available in the market.
The Commission observed that: “This was an attempt to induce the young
generation to switch over from cold drinks to beer. There was a third
advertisement of Derby Special soda. On inquiry, it was found that there
was no Derby Special soda anywhere in the market and Derby Special
whisky was available with wine dealers. These attempts were highly
objectionable, deplorable and also patently illegal”. Pointing out that the
State Commission had not asked for corrective advertisements on TV nor had
it asked for such advertisements on railway coaches for three months, but only
for a week, the apex consumer court said what has been asked for, in terms
of corrective advertisements, was not appropriately commensurate with the
harmful effect of the earlier advertisement.
In this entire episode, the Railways come out in very poor light. As the State
Commission pointed out, the advertisements contravened the Railways own
guidelines for commercial advertising, which prohibited not just liquor advertisements
but also surrogate advertisements. Yet, when the consumer group first approached
the Railways to remove the advertisements, the response of the Railways was
certainly not that of a law-abiding, responsible, public sector undertaking.
Apparently, the Railways refused to discontinue the advertisement on the ground
that the agreement had already been executed (for carrying the ad). This forced
Mumbai Grahak Panchayat to file the case before the State Commission13.
Making false promises to sell a product is clearly an unfair trade practice
and compensation in such cases should be exemplary: NCDRC
In his complaint before the consumer court, the consumer/ complainant pointed
out that in order to promote a brand of bread called ‘Bonn’, the manufacturer
had announced, through advertisements, that each packet of bread would contain
a ‘Scratch and win’ coupon. The advertisement, the consumer complained,
implied that every person purchasing a packet of bread would win one of the
prizes mentioned in the advertisement. Allured by it, he bought the bread, priced
at Rs. 10, but every time he scratched the coupon, he found the words “Please
try again”. This, he argued, was clearly an unfair trade practice. In response,
the manufacturer argued that the scheme was launched without charging any
extra amount and it had not given any guarantee that every purchaser of bread
will win a prize as alleged. By its order dated 4.1.2001, the District Forum
held the manufacturer guilty of unfair trade practice and awarded Rs. 5,000
as compensation. Unhappy with this verdict, the consumer filed an appeal for

13
74 Bonn Nutrients Pvt. Ltd. v/s. Jagpal Singh Dara, IV(2005) CPJa08 (NC)
enhancement of the compensation and in response; the Punjab State Commission Consumer Behaviour in
Market Economy
increased the compensation to Rs. 50,000, through its order delivered in July
2002.
Subsequently the manufacturer filed a revision petition before the apex consumer
court. The National Commission held that there was no illegality in the order
of the State Commission warranting its interference. What it said about the
compensation is highly relevant. It said: “In our view, in case of unfair trade
practice like the present one, the compensation to be awarded has to be
exemplary. Compensation as enhanced by the State Commission, thus, by no
stretch of imagination is excessive”. It thus dismissed the petition with costs
of Rs. 3000 to the consumer14.
A case of Defective Goods
A ration shop supplied a ration card-holder rapeseed oil adulterated with known
toxic adulterants. The complaint and his family, as a result of that rapeseed
oil consumption suffered severally. He was attacked with paralysis of lower limbs
and inspite of prolonged treatment he did not recover fully. His wife, inspite
of medical treatment, was not able to carry on her ordinary avocation as
housewife because of ailment. His two daughters and a son, all growing children
were also affected and medical report was that they had severe attack. There
educational carrier was doomed. Considering all these facts, the commission
awarded a sum of Rs. 1,50,000/-to the complaint and Rs. 50,000/-for his wife
and Rs. 25,000/- to each of the children resulting in awarding of total of Rs.
2,75, 000/-.15
Few cases on Deficiency of Services
In the case on SP Dhavaskar v. Housing Commissioner, Karnataka
Housing Board and Vice-versa, the complaint had made a deposit of Rs.
1.66 lakhs with the Housing Board for a house proposed to be built by the
Board. He was told that the construction be completed within two years from
March, 1992. He was informed that the construction was not upto the expected
level because of the use of low cost technology and that the houses constructed
developed defects and might not long and suggested that the complaint might
take back the amount of deposit without interest of opt a new house in lieu
of the house already allotted. The complaint made a claim of Rs. 4.65 lakhs
which was rejected. The State Commission held that the act of Housing Board
amounted to a deficiency in service and returning deposit amount without interest
was unreasonable and ordered payment of interest at 18% p.a. In apple, the
National Commission upheld the order of the State Commission.16
In the case of Poonam Verma v. Ashwin Patel, it was held that a doctor
qualified under the homeopathic system of medicines treats a patient with
allopathic medicines, he is guilty of negligence and compensation is due if the
patient dies on such account.17
Telecom District Manager v. Umesh Chandra Patnaik
In this case, the complaint had alleged that he was not receiving telephone bills
regularly and, therefore, on amount of non-payment of some bills his telephone
had been disconnected.
14
Brasad Ali vs. Managimg Director, West Bengal Essential Commodities Supplies Corp.
1993, ccj 476
15
Laws (NEC) - 1993-3-18
16
1996AIR 2111, 1996 SCC (4) 332
17
Laws (NCD(-1993-3-33 75
Consumer: The Basics Held, in the absence of any provision in the Telegraph Act, on the basis of
the rules requiring that telephone bills should be dispatched by registered post,
the Department could not be said to have committed any deficiency in service.
In Lucknow Development Authority v. Roop Kishore Tandon the failure
of Housing Board to give possession of the flat after receiving the price and
after registering it if favour of the allottee was held to be deficiency in service.

4.5.1 Features of Monopoly

l Complete control on supply
The monopolist has complete control on the supply of the product because
he is only one seller in the market.
l No close substitute of commodities
There should be no substitute to the monopolist product. This implies the
complete absence of competition under monopoly.
l Restrictions on the entry of new firms
The monopolist seller of the product should be confident that no other
firm will arise in the future to compete. There can be a number of obstacles
and obstructions on the entry of new firms into the industry like restriction
on arising out of the copyright and patents lying with the monopolist, the
capacity of the monopolist to crush the budding firms, non-availability of
technically developed plant and empirical knowledge about the factors
operating in the industry etc.
l No fixed price
A monopolist can adopt any price he likes, he can charge uniform price,
or he can charge different prices from different customers.
In contrast to the behaviour of a competitive firm for which price is given, a
firm exercising monopoly power over a given market can raise the price above
marginal cost without losing its clients. The total output produced by a monopolist
is less than that of producer under perfect competition. It must be remembered
that both the monopolist and the producer under perfect competition have profit
maximisation as their main objective. Also, the cost of production may be the
same under both types of markets. In contrast, the capacity to determine the
price, in a monopoly, is with the producer.
Since a monopolist could have the option of deciding the price, cost of production
does not become a constraint. Resources of an economy may be used for those
activities where these would not have gone if there were perfect competition.
Thus, resource utilization may not be efficient under a monopolist market.

Box 4.3 : Market Divison and Block Pricing

Understand the meaning of following terms in the context of a monopoly
market structure
i) Market Division: The monopolist would plan to control the supply
and charge different prices for a product. The places frequently visited
18
76 Laws (NCD)-1990-10-28
 Consumer Behaviour in
Market Economy
by rich buyers may be selected for charging a higher price than one
in which poor people are the dominant customers. The total sale of
a monopolist will not decline and profit making chances increase due
to such a strategy.
ii) Block Pricing: A monopolist often adopts the strategy of block
pricing. The price charged varies from one slab to another. Remember
the practice of electricity billing in urban areas. Consumers pay one
rate for consumption of electricity upto a specified limit. Once the
limit exceeds, they are required to pay a higher rate.

4.5.2 Ceiling on a Monopolist

The above, however, need not suggest that the monopolist can raise the price
of a commodity to any level. A ceiling on such a move exists due to operation
of the law of demand. You may recall that demand for a commodity declines
as its price goes up. This implies that a higher price charged by the monopolist
could lead to a lower demand. There is a deciding condition of production
between price and cost under monopoly. The equality between additional revenue
obtained from selling an extra unit of output (called as marginal revenue) and
cost of producing an additional unit of output (known as marginal cost)
determines the quantity of output produced by a price charged is higher.
Monopolist makes more profit from the production.
Pure monopoly as a form of market structure is hard to come by. Nevertheless,
some producers enjoy the status of a single supplier of a product and hence,
behave like a monopolist, the services such as telephone, railways, posts and
telegraph as well as for telephone these days. So to find examples of monopolies,
one has to go back to 1960s and 1970s.

4.5.3 Perfect Competition and Pure Monopoly

Perfect competition and pure monopoly represent two extreme market situations.
In perfect competition, the number of firms, in an industry is indefinitely large,
while at the opposite end of the spectrum, monopoly is a one-firm industry.
In under perfect competition, the main objective of the monopolistic concern
is to earn the maximum profits. In other words, the monopoly firm can achieve
equilibrium only when it earns maximum profits. Whereas zero economic profit
per firm is a long run feature of perfect competition, monopolisation of the market
and greater prospect of profit characterises a monopolistic market. In the real
world situation, it is hard to come across either a perfect competitive or a pure
monopolistic situation.
Cases of monopoly in the sense of a single firm are as rare as those of perfect
competition. But in an isolated locality, the existence of only one hotel or bank
or doctor or general store may command monopoly power over the customers
in that locality. In the field of public utilities, as telephones and telegraphs,
railways, provision of water supply, etc., may be cited as examples of
monopolies. These are known as public utilities as they provide certain essential
services to the community.

77
Consumer: The Basics Check Your Progress 3
1) What is monopoly? How does it differs from perfect competition?
................................................................................................................
................................................................................................................
................................................................................................................
2) Write a few lines on each of the following:
a) Market Division
........................................................................................................
........................................................................................................
........................................................................................................
b) Block Pricing
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........................................................................................................

4.6 MONOPOLISTIC COMPETITION

Economists Edward Hastings Chamberlin and John Robinson have pointed out
the limitations of competitioner monopoly analysis of markets. Chamberlin
developed Monopolistic Competition theory. In monopolistic competition many
sellers of a product do not survive in the market, because the products of these
sellers are similar in many respects, yet the consumers do not consider then
completely identical. There are very few monopolists, because there are very
few commodities for which close substitutes do not exist; there are very few
commodities that are entirely homogeneous among producers. This implies that
in the case of monopolistic competition the sellers do not sell completely
substitutable goods but indulge in product differentiation. As a result, different
groups of consumers are attracted towards goods produced by different sellers.
This gives rise to an element of monopoly in the market enabling the sellers
to earn extra profits. On the other hand, there is a wide range of commodities,
some of which have relatively few good substitutes and some of which have
many good but not perfect substitutes.
In these conditions, every dealer will base his price and output polices upon
his estimate of demand and cost schedules. He will assume that everyone, like
himself, will accept the policies of others as given and unaffected by the policies
which he himself follows.
4.6.1 Features of Monopolistic Competition
 Product differentiation
The product of each firm is differentiated from those of the others in one
or more ways. Product differentiation and different preferences of consumers
make monopolistic competition different from perfect competition. For
example, a Maruti car is different from a Fiat for this purpose in the
car market. So the producer has some degree of monopoly power in the
market.
78
 Large numbers of sellers
Consumer Behaviour in
Market Economy

In this market large numbers of sellers are produced inspite that no individual
firm becomes a price taker of its product. The number of producers or
sellers in the market is sufficiently large. Because of this large number, no
firm is dependent on other firms. In other words, it can determine its
behaviour independently and does not have to worry about the reaction
of other firms.

 Possibility of quality variation

Each firm has the option of choosing between different qualities of the
product.

 Selling expenses

The selling expenses add to its aggregate cost of supply which it tries to
recover by strengthening the demand for its product and charging a higher
price.

 Given Input Prices and Technology Range

It is assumed in monopolistic competition that for each firm the price of

inputs as also the range of technology for producing the product are given.

 Knowledge of costs and demand

It is assumed that every firm in the monopolistic competition has accurate

knowledge of its costs and demand conditions. This assumption is necessary
to ensure that when a firm takes decisions regarding any change in (1)
the quality of product, (2) the choice of the plant size or, (3) the amount
of selling expenses; it can estimate their effect on the demand conditions
and the price it can charge.

 Free entry and Exit

It is assumed that any firm can freely leave the group and new firms can
enter it by producing close substitutes of the existing products.

 Rationality

The assumption of rationality on the part of the firm is also there. It means
that each firm tries to maximise its profit both in the short run and in the
long run.

 Identical cost and demand conditions

It is assumed that in this market cost and demand conditions of all firms
are identical. As a result, changes in the quality of their products and /
or selling expenses have similar effects on their cost and demand conditions.

 No close substitute goods

Under monopolistic competition produced goods which are close but not
perfect substitutes.
79
Consumer: The Basics
4.7 OLIGOPOLY MARKET AND PRICE
Oligopoly or its limiting form, Duopoly, is a market situation intermediate between
the case of Perfect Competition, Monopoly and Monopolistic Competition.
Oligopoly is that from of imperfect competition where there are a few firms
in the market, producing either a homogeneous product or products which are
close but not perfect substitutes of each other. Oligopoly differs from Monopoly,
in a Monopoly, only one seller operates in the market: there is no competition
because there are no rivals. Perfect competition and monopolistic competition
represent the opposite. The number of firms in the market is many. So the
action of any is expected to have no perceptible influence on the other. Several
of the present day markets in capitalist countries are oligopolistic. The prices
and outputs of several products, such as, steel, aluminium, automobiles, tyres,
heavy electrical equipments, etc., are determined by a few firms in each of the
industries that produce them. Oligopoly, in fact, seems to be a characteristic
of industries where modern methods of production are applicable.
Each oligopolist tries to introduce some kind of quality differentiation in his
product and goes on to highlight the quality differences as so to successfully
complete with the rivals. Oligopoly, therefore, has more than one seller operating
in the market. But the number is not so large that the action of one would
affect the operations of others in the field. Product differentiation in an
oligopolistic market situation makes price competition infrequent.

4.7.1 Features of Oligopoly

l Excess Capacity in the Market
Excess capacity is often maintained to have an edge over the rivals in
the market. To see this, first imagine two neighbouring producers, one has
excess capacity and another doesn’t. Suppose that there is an increase
in demand, immediately, the ‘excess capacity’ producer will have the
advantage of coming to the market with more output. But excess capacity
is maintained in an oligopoly market because of other important reason.
One of these is to know one’s rivals so that in case of a competition,
market would be flooded with his/her product with reduced price to
effectively block his/her entry. This feature indicates that resources unlisted
to produce a unit commodity are more than what is necessary. When more
investment is made, cost components increase. So prices charged are higher
than the average cost.
l Indeterminateness
In this market, a firm does not know for certain whether its decisions
regarding price and output will affect its competitors favourably or
adversely. Further it does not know whether it competitors will approve
or disapprove of its decisions, and in what way their reactions will be
known.
l Spend Huge amount of Money on Advertisements
Another feature of oligopolistic market is utilisation of vast amounts of
resources for advertising. Many markets of the world exhibit oligopolistic
market structure. Remember, the tooth paste we use in daily life. With
80
 slight differentiation, there are a good number of producers selling tooth Consumer Behaviour in
Market Economy
paste in the market. A similar example can be found in many consumer
durables like car, fan refrigerators, television and furniture.
Look at the cosmetic market. A good number of producers supply these
close substitutes. An important feature in the above kind of products is
marginal variation in consumer prices. Producers spend huge amount of
money on advertisement to attract customers to their products. The
common exercise of how oligopolists function in the market can be seen
from advertisements coming in TV.
William Baumol has said “Under oligopoly, advertising can become a
life and death matter where a firm which fails to keep up with the
advertising budget of its competitors may find its customers drifting
off to rival products.”
l Element of Monopoly
There is an element of monopoly present in oligopolistic conditions. As
pointed out earlier, there are only a few firms in the market under
differentiated oligopoly; each firm producing a differentiated product. Since
each firm controls a large share of the market and produces a differentiated
product, it acts in its own limited sphere as a petty monopolist when it
comes to price and output fixation. The element of monopoly becomes
still more conspicuous when the customers are deeply attached to the
product of the oligopolistic firms. In that case, the firm will have greater
freedom to fix price and output at the desired level.
l Conflicting Attitudes of Firms
Oligopoly firms show conflicting attitudes to one another. On the one side,
they may appear to realise the disadvantages of competition and rivalry
and may work out some policy of collusion or they may continuously come
in conflict with one another, as each is interested in maximising its share
of profits. One result of this conflict is the uncertainly in the minds of sellers.
Table 4.2 : Types of Market Structure
Market No. of Types of Power of Barriers of Non-price
Structure Producers Producers Firms over Price Entry Competition

Perfect Many Standardised None Low None

competition

Monopoly One Unique Considerable Very high Advertising

product

Monopolistic Many Differen- Some Low Product

competition tiated differentiation
and
advertising

Oligopoly A small Standar- Some High Product

Number dised of and differentiation
Differen advertising
tiated

81
Consumer: The Basics Check Your Progress 4
1) What are the feature of Monopolistic competition?
................................................................................................................
................................................................................................................
................................................................................................................
2) What are the main features of Oligopoly?
................................................................................................................
................................................................................................................
................................................................................................................
3) Give examples of:
a) Perfectly competitive market
........................................................................................................
........................................................................................................
........................................................................................................
b) Monopoly
........................................................................................................
........................................................................................................
........................................................................................................
c) Oligopoly
........................................................................................................
........................................................................................................
........................................................................................................
d) Monopolistic Competition
........................................................................................................
........................................................................................................
........................................................................................................

4.8 LET US SUM UP

The above discussion attempts to introduce different markets from where
consumers derive varying measures of benefit. It introduces the conditions under
which consumer behaviour synchronises with producer behaviour leading to a
situation where welfare of the society is maximised.

4.9 KEY WORDS

Demand : Willingness backed by capacity to pay for a commodity.
Utility : What satisfying property of a commodity
Marginal Revenue : An increase in total revenue due to the sale of an extra
82 unit output.
Market : Market refers to a region when the buyers and sellers Consumer Behaviour in
Market Economy
of a commodity come in contact to each other to effect
the transaction of purchase and sale of the commodity.
Perfect Competition : A market structure with large number of buyers and
sellers.
Monopoly : One single producer of a commodity selling in the
market.
Monopolistic : A firm of market with many sellers of a differentiated
competition product.
Oligopoly : A market structure with only a few sellers of a
differentiated product.

4.10 SOME USEFUL BOOKS AND REFERENCES

1) Consumer Awareness, CESE publication, New Delhi, 1997.
2) Introductory Micro Economic, Dhanpat Rai Publication Ltd., New Delhi.
3) London D.L and Dalla Bitta A.J., Consumer Behaviour- Concepts and
Applications, Tata, Mcgeaw Hill, 1984.
4) Schifmann L and Kanuk LL, Consumer Behaviour, Prentice hall of India
Ltd., New Delhi, 1995.
5) Assael Henry (1995), Consumer Behaviour and Marketing Action, 5th
ed. , Kent Publishing Company, Boston.

4.11 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES
Check Your Progress 1
1) Please refer Sub-section [Link]
2) a) Please refer Sub-section 4.3.3
b) Please refer Sub-section [Link]
c) Please refer Sub-section [Link]
Check Your Progress 2
1) Please refer Sub-section 4.4.1
2) Please refer Sub-section 4.4.2 (Box 1)
Check Your Progress 3
1) Please refer Sub-section 4.5.1 and 4.5.3
2) Please refer Sub-section 4.5.1 Box 3.
Check Your Progress 4
1) Please refer Sub-section [Link]
2) Please refer Sub-section 4.7.1

83