Differences Between Price and Non-Price Competition Markets

1925 words (8 pages) Essay in Economics

12/12/17 Economics Reference this

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An arrangement made by where buyers and sellers coming close contact with each other for the purpose of buying and selling of goods and services directly or indirectly is described as market.

  • Perfect
  • Competition
  • Monopolistic
  • Competition
  • Monopoly
  • Competition


  • Oligopoly
  • Competition
  • Duopoly
  • Competition


  • Single firm
  • No substitute
  • Price maker
  • Downward sloping supply curve
  • Entry barriers
  • No competition


  • Price
  • Homogenous products
  • Large number of buyers and sellers
  • Free entry and free exit
  • Perfect knowledge
  • Perfect mobility of factors of production
  • Absence of transport cost


  • 2 sellers
  • Restricted entry
  • Sellers have some market power
  • Close substitute might be differentiated
  • Demand curve downward sloping
  • Equilibrium point is MR =MC


  • Few sellers
  • Homogenous and differentiated products
  • Restricted entry
  • Imperfect information
  • Interdependence and constant struggle
  • Very high price elasticity
  • High selling cost
  • Lack of uncertainty


  • Large number of buyers an sellers
  • Product differentiation
  • Free entry
  • High selling cost
  • Two dimensions of competition
  • Price
  • Non price




  • Marketing strategy in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship”
  • Marketing strategy where a company tries to distinguish its product or service from competing products on the basis of low price.


  • The focus is on quality, deign, delivery methods, locations, special services
  • The focus is on only price of the product.


  • It is usually more profitable than selling for a lower price, and avoids the risk of a price war.
  • The company may lead to sub normal profit or normal profit.


  • Selling cost is high as the company spend a lot on promotional activities
  • Selling cost is low as company focuses on price factor more than promotional activities.


  • Most common among oligopolies and monopolistic competition, because firms can be extremely competitive.
  • Due to excessive completion, a situation of price wars occurs in oligopolistic and monopolistic markets


  • Shampoo Market
  • Mobile service providers


  • Applicable to all markets except perfect & monopoly market.
  • Single buyer in monopoly so no competition.


  • Applicable in all types of markets except monopoly market
  • All are price takers & monopoly is price maker.


  • Product differentiation is the process of distinguishing a product from other products in the market by adding unique features like style, quality, offers etc which makes it more attractive and superior to the target market.
  • The success of the product differentiation is more based on non price factors not price factors and successful differentiation gives origin to monopolistic competition and sometimes to perfect competition also.

There are three types of product differentiation:

  1. Simple: based on a variety of characteristics
  2. Horizontal: based on a single characteristic but consumers are not clear on quality
  3. Vertical: based on a single characteristic and consumers are clear on its quality

3 Elements of price differentiation

  1. Convenience- as the changing scenario customer wants the product as soon as possible. So the firm should try to deliver the product available on time.
  2. Customization- according to the needs of the customers the product must change in terms of sizes, color, design, technology etc
  3. Cost recovery- this is the cost that is worth charging. It doesn’t mean very high or very low but should be reasonable according to the product.

Non price determinants of demand

Income of the consumer

  • There is direct relation between the income of the consumer and demand for it. Generally, higher the income, higher the quantity demanded and lower the income lower the quantity demanded.

Price of the related good

  • In case of substitute goods, demand for a commodity falls with the fall in the price of other commodities
  • In case of complementary goods, price demand of a commodity rises with the fall in the price of other commodities.

Taste and preference

  • If the customer has developed a taste for a commodity, the demand will increase
  • If he has no taste and preference for the product, the demand will decrease.

Seasonal factors

  • The demand keeps on changing according to the weather conditions. Summers will increase the demand of soft drinks whereas winter will increase the demand og woolens.

Number of buyers

  • The demand of any product depends on the number of buyers of the product. More the buyers demand will be high, less the number of buyer demand will be less.,

Future expectations

  • If the price of any commodity is expected to rise in future, customers starts buying prior to that and if the pries are expected to come down in future the customer postpone his buying to get the benefit.


Input prices

  • As the input prices increases, the supply will be affected and will fall down.


  • Quantity of the material required depends upon the technology. Cost saving technology results in fall in input prices and thus increase in the supply.

Number of sellers

  • With the increase in the number of sellers, the supply also increases with the curve shifting to its right side.


  • If the prices are expected to rise in future, the seller will make artificial shortage and thus the supply decreases.


  • The consumers get low prices as the emphasis is not on price it’s basically on the other factors of the product other than price.
  • To bring variations firms keep on bringing new technologies which result in more smoothing of the functions and add variation in the product.
  • The emphasis is not on price and hence the main focus is on improving the quality and the services of the product.
  • Large number of variants leads to many choices and options for the customers in the market.
  • There is no price war in the market hence it keeps and creates a proper discipline in the market which leads to smooth situation.
  • Consumers get more and more perks in terms of offers and discounts which attract people and thus lead to competition in the market.
  • A typical feature of non-price tools is that they may modify the degree of substitutability among goods.



  • This measure the responsiveness of quantity demanded of a product to changes in its own price.
  • It allows comparison of quantity demanded with monetary changes
  • It measures the change



Perfect market

Monopoly market

Monopolistic market

Oligopoly market

Duopoly market

In this market the demand is elastic as the products are identical in nature and are perfect substitute of each other.

This market is highly inelastic as there is 1 seller who can make changes in the price and quantity demanded accordingly.

Demand is relatively elastic, with small change in price leads to large change in quantity demanded as all the products are close substitute of each other.

Demand is relatively elastic as the products are close substitute of each other.

Demand is relatively elastic as there are only 2 sellers in the market and the products are close substitute.

For example-

If the price of steel and iron increases what happens to its quantity demanded.


The responsiveness of demand for one good to a change in the price of another; the proportionate change in demand for one good divided by the proportionate change in the price of the other.



Perfect market

Monopolistic market

Duopoly market

Oligopoly market

Monopoly market

As the products are homogenous there is a high price cross elasticity demand.

Cross piece elasticity is relatively high due to competition and the number of producers in this market is high

Fewer producers in the market so the cross price elasticity is low.

Products are close substitute, so change in price will increase the demand of another product. It has high cross elasticity.

Only 1 seller in the market and hence no substitute is available so cross price elasticity is not applicable


  • Pricing policy has a direct impact on the customers as pricing of any product is the first observation of customers.
  • Setting prices is comparatively a simple task as it does not require financial and accounting records to determine prices
  • No market research is required which involves a high cost. So it saves cost on promotional activities as compared to non price competition.
  • Pricing directly indicates the quality and standard of the product and thus the value of the product can be estimated.
  • Price competition divides the segments properly as it clearly points the premium and economy class.
  • Pricing strategy helps a lot to new players entering in the market to gain market share.


Price and non price, both have different impact on the markets. As observed in the above assignment it is seen that monopolistic market is the market situation which is most influenced by both the strategies i.e. price and non price.

This assignment is all my own work and has not been copied in part or in whole from any other source, except for any clearly marked up quotation. It complies with the Institute’s regulations on Plagiarism which I have read and understood.

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