UNIT 5

MARKET STRUCTURES AND PRICING

MEANING OF MARKET
INTRODUCTION:
Markets constitute an important phase in the economic activity. All the goods and services that are produced
need to be sold to the consumer for a price. Markets facilitate this process.
We cannot imagine a society without markets even for a while. Markets primarily provide possession utility
for the goods and services. In other words the seller sells the goods to the buyer and thus transfers ownership
of the goods.
DEFINITION: Market is defined as a place or point at which buyers and sellers negotiate their exchange of
well defined products or services.
♦ According to Chapman, "the term market refers not necessarily to a place and always to a commodity and
buyers and sellers who are in direct competition with one another”.
♦ According to the French economist Cournot, "Market is not any particular place in which things are bought
and sold, but the whole of any region in which buyers and sellers are in such free intercourse with each other
that the prices of the same goods tend to equality easily and quickly".
♦ The above-mentioned definitions reveal the following features of a market:
1. A region. A market does not refer to a fixed place. It covers a region, which may be a town, state, country
or even world.
2. Existence of buyers and sellers. Market refers to the network of potential buyers and sellers who may be
at different places.
3. Existence of commodity or service. The exchange transactions between the buyers and sellers can take
place only when there is a commodity or service to buy and sell.
4. Bargaining for a price between potential buyers and sellers.
5. Knowledge about market conditions. Buyers and sellers are aware of the prices offered or accepted by
other buyers and sellers through any means of communication.
6. One price for a commodity or service at a given time.
Classification of Market:— Markets may be classified on the basis of different criteria.
There are three important factors in classification of markets
1. The number of buyers and sellers.
2. The area coverage
3. Time periods.

I. Competition based Markets:

1. Perfect competition: It is a market with a very large number of buyers and sellers market conditions are
favorable to promote competition such market is called as perfect competition.
2. Imperfect competition: Market with a limited number of buyers and sellers come under imperfect
competition. Based on the number of producers, monopolistic competition and oligopoly.

II. Area Based Market:

Market based on area broadly classified into local, national, international market. It depends on size of the
market.
1 .Local market:- sometimes a particular commodity is exchanged in the locality where it is produced. Then
the commodity is said to have a local market.
Ex:- Vegetables, flowers, fruits may be produced and marketed in the same area.
2. National market:- A commodity will have national market if it is demanded and supplied by people in
different parts of the country.
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Ex:- wheat, sugar, cotton etc.
3. International market:-If a commodity is sold and purchases in different countries it is said to have
international market.
Ex:- gold, silver, cotton.

III. Time based Market:

1 .Market period or very short period:-A producer cannot make any changes in the supply of a good during
this period. As we know, supply can be a changed by market changes in the inputs. Inputs cannot be changed
in the very short period.
Ex:- A farmer on a particular day supplies whatever vegetables gets from the field.
2. Short period:- It is a period in which supply can be changed to same extent. This is possible by changing
certain inputs.
Ex:- in a period of two to three weeks a farmer may use more fertilizer, water to increase his supply.
3. Long period:- A producer makes changes in all inputs depending upon the demand in the long period. It
is possible to make adjustments in supply in this period.

TYPES OF MARKET STRUCTURES

♦ Market can be classified on the basis of area, volume of business, time, status of sellers,
regulation and control.
♦ The main types of markets can be summed up as follows :

1. Perfect Competition :
- Perfect competition market is one where there are many sellers selling identical products to
many buyers at a uniform.
2. Monopoly :
- Monopoly market structure is a market situation in which there is a single seller of a
commodity selling to many buyers.
- The commodity has no close substitutes available.
- A monopolist therefore, has a considerable influence on the price and supply of his
commodity.
3. Monopolistic Competition :
- Monopolistic competition is a market situation in which there are many sellers selling
differentiated goods to many buyers.
4. Oligopoly
- Oligopoly is a market situation in which there are few sellers selling either homogeneous or
differentiated goods.
CONCEPTS OF TOTAL REVENUE, AVERAGE REVENUE AND MARGINAL REVENUE.
♦ Total Revenue : (TR)
- Total revenue may be defined as the total amount of money received by the firm by selling
a certain units of a commodity.
- It is obtained by multiplying the price per unit of a commodity with the total number of units
sold.
- Total Revenue = Price per unit × Total No. of units sold
TR = P × Q
- E.g. A firm sells 100 units of a commodity (a) Rs. 15 each, then its total revenue is Rs. 15 ×
100 units = Rs. 1,500
♦ Average Revenue : (AR)

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- Average revenue is the revenue per unit of the commodity sold.
- It is simply the total revenue divided by the number of units of output sold.
Average Revenue = Total Revenue / No.of units sold
AR =TR / Q
- E.g. A firm earns total revenue of Rs. 2,000 by the sale of 100 units of a commodity, then
its average revenue is Rs. 20 (Rs. 2000 ÷ 100 units)
- By definition average revenue is the price per unit of output. To prove it —
AR =TR / Q
, since TR = P × Q
AR =P×Q / Q
∴AR = P (Price)
♦ Marginal Revenue (MR) :
- Marginal revenue refers to the addition to total revenue by selling one more unit of a
commodity.
- Marginal revenue may also be defined as the change in total revenue resulting from the
sale of one more unit of a commodity
- E.g. If a firm sells 100 units of a commodity @ Rs. 15 each, its TR is Rs. 1,500. Now, if it
increases the sale by ten units i.e. it sells 110 units @ Rs. 14 each, its TR is Rs. 1,540.
Thus, it MR is Rs. 40
MR =Δ TR / ΔQ
- Where - Δ TR is the change in total revenue Δ Q is the change in the quantity sold
- For one unit change – MRn = TRn – TRn-1
Where
MRn = Marginal Revenue from 'n' units
TRn = Total Revenue of ‘n’ units
TRn-1 = Total Revenue from 'n-1' units
n = any give number
PRICE-OUTPUT DETERMINATION UNDER DIFFERENT MARKET FORMS

PERFECT COMPETITION
Introduction :
♦ Perfect competition is a market structure where there are large number of firms (seller)
which produce and sell homogeneous product. Individual firm produces only a small portion
of the total market supply.
♦ Therefore, a single firm cannot affect the price.
- Price is fixed by industry.
- Firm is only a price taker.
- So the price of the commodity is uniform
The perfectly competitive structure is characterized by the following features:
(1) Large number of buyers and sellers :
■ The number of buyers and sellers is so large that none of them can influence the price in
the market individually.
■ Price of the commodity is determined by the forces of market demand and market supply.
(2) Homogeneous Product:
■ The product produced by all the firms in the industry are homogeneous.
- They are identical in every respect like colour, size, etc.
- Products are perfect substitutes of each other.
(3) Free entry and exit of the firms from the markets :
■ New firms are free to enter the industry any time.

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■ Old firms or loss incurring firms can leave industry any time.
■ The condition of free entry and exit applies only to the long run equilibrium of the industry.
(4) Perfect knowledge of the market:
■ Under perfect competition, all firms (sellers) and buyers have perfect knowledge about the
market.
■ Both have perfect information about prices at which commodities can be sold and bought.
(5) Perfect mobility of factors:
■ The factors of production can move freely from one occupation to another and from one
place to another.
(6) Transactions take place on the basis of price only:
No personal or other considerations enter sale or purchase. The sellers do not collude with each other. They
make their decisions independently.
(7) No transport cost:
■ Transport cost is ignored as all the firms have equal access to the market.
(0) No selling cost:
■ Under perfect competition commodities traded are homogeneous and have uniform price.
■ Therefore, firm need not make any expenditure on publicity and advertisement.

Equilibrium of the Industry :

♦ Industry is a group of firms producing identical commodities.
♦ Under perfect competition, price of a commodity is determined by the interaction between
market demand and market supply of the whole industry.
♦ The equilibrium price is determined at a point where demand for and supply of the whole
industry are equal to each other.
♦ No individual firm can influence the price.
♦ Firm has to accept the price determined by the industry.
♦ Therefore, the firm is said to be price taker and industry, the price maker.
♦ Equilibrium of the industry is illustrated as follows :

Industry

Price Rs. Demand Supply

Per Unit
(Units) (Units)

10 20 100

0 40 00

6 60 60

4 00 40

2 100 20

♦ The above table and fig. shows that at a price of Rs. 6 per unit, the quantity demanded equals quantity supplied.
♦ The industry is at equilibrium at point 'E', where the equilibrium price is Rs. 6 and equilibrium quantity is 60 units.
Equilibrium of a firm :
♦ We have already seen that under the perfect competition, the price of the commodity is determined by the forces
of market demand and market supply i.e. price is determined by industry.
♦ Individual firm has to accept the price determined by the industry. Hence, firm is a PRICE TAKER.
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 Price Demand Supply Price Quantity Total Average Marginal
Rs. per Sold (units)
(units) (units) Rs. Revenue Revenue Revenue
unit
𝚫 𝐓𝐑
=
∆𝐐

10 20 100 6 8 48 6 6

0 40 00 6 10 60 6 6

6 60 60 6 12 72 6 6

4 00 40 6 14 04 6 6

2 100 20 6 16 96 6 6

♦ In the table - the equilibrium price for the industry has been fixed at Rs. 6 per unit through the inter-action of market
demand and supply.
♦ Table - shows that the firm has no choice but to accept and sell their commodity at a price that has been determined
by the industry i.e. Rs. 6 per unit.
♦ The firm cannot charge higher price than the market price of Rs. 6 per unit because of fear of loosing customers to
rival firms.
♦ There is no incentive for the firm to lower the price also. ♦ Firm will try to sell as much as it can at the price of Rs. 6
per unit.
♦ Table - shows that firm's AR = MR = Price.

Fig. shows that being a price taker firm, it has to sell at a given price i.e. Rs. 6 per unit.
♦ Therefore, firm's demand curve is a horizontal straight line parallel to X-axis i.e. a perfectly
elastic demand curve.
♦ We know that price of a commodity is also the AR for the firm.
♦ Therefore, demand curve also shows the AR for different quantities sold by the firm.
♦ As every additional unit is sold at a given price i.e. Rs. 6 per unit, the MR = AR and the two
curves coincides.
♦ Thus, in a perfectly competitive market a firm’s AR — MR = Price = Demand Curve
Conditions for equilibrium of a firm :
♦ In perfect competition, the firms are price takers and output adjusters.
♦ This is because the price of the commodity is determined by the forces of market demand
and market supply i.e. by whole industry and individual firm has to accept it.
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♦ Therefore firm has to simply choose that level of output which yields maximum profit at the
prevailing prices.
♦ The firm is at equilibrium when it maximises its profit.
♦ The output which helps the firm to maximise its profit is called equilibrium output.

♦ There are two conditions for the equilibrium of a firm. They are —
1. Marginal Revenue should be equal to the marginal cost i.e. MR = MC. (First order
condition)
2. Firm’s marginal cost curve should cut its marginal revenue curve from below i.e.
marginal cost curve should have positive slope at the point of equilibrium. (Second
order condition)
♦ If MR > MC, there is incentive to produce more and add to profits.
♦ If MR < MC, the firm will have to decrease the output as cost of production of additional
units is high.
♦ When MR = MC, it is equilibrium output which maximises the profits

♦ Fig. shows that OP is the price determined the industry and firm has to accept it.
♦ At prevailing price OP the firm faces horizontal demand curve or average revenue curve.
♦ Since the firm sells every additional unit at the same price, marginal revenue curve
coincides with average revenue curve.
♦ In the fig. at point 'A', MR = MC but second condition is not fulfilled.
♦ Therefore, OQ1 is not equilibrium output. Firm should expand output beyond OQ1 because-
- it will result in the fall of marginal cost, and
- add to firm's profits.
♦ In the fig. at point 'B' not only MR = MC but MC curve cuts the MR curve from below i.e. it has positive
slope.
♦ Therefore, OQ2 is the equilibrium level of output and point 'B' represents equilibrium of
firm.
Short Run Equilibrium of a Competitive Firm/ Perfect competition. (Price - Output
Equilibrium)
♦ A competitive firm in the short run attains equilibrium at a level of output which satisfies the
following two conditions:
1. MC = MR, and
2. MC curve cuts the MR curve from below.
♦ When a competitive firm, is in short run equilibrium, it may find itself in any of the following
situations —
1. it break evens i.e. earn NORMAL PROFITS where Average Revenue = Average Cost i.e.
AR = AC.
2. it earns profit i.e. earn SUPER NORMAL PROFITS where Average Revenue > Average
Cost i.e. AR > AC.
3. it suffer LOSSES where Average Revenue < Average Cost i.e. AR < AC.
■ Normal Profits (AR = AC) :

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A firm would earn normal profits if at the equilibrium output AR=AC.

Equilibrium point : E (MR = MC)

Equilibrium output : OQ
Average Revenue : QE(=OP)
Average Cost : QE
Therefore, AR = AC. Hence, Normal Profits.
■ Super Normal Profits (AR > AC) :
A firm would earn super normal profits if at the equilibrium output AR > AC.

Equilibrium point : E (where MR = MC)

Equilibrium output : OQ
Average revenue : QE(=OP)
Average cost : QF
Profit per unit : Average Revenue - Average Cost = QE - QF = EF
Total Profits : Total output × profit per unit = OQ × EF
= Area PEFG.

■ Losses (AR < AC):

A firm suffer losses, if at the equilibrium level of output, its AR < AC.

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Equilibrium Output : OQ
Average Revenue : QE
Average Cost : QF
Loss per unit : Average cost - Average Revenue = QF - QE = EF
Total Loss : Total output × loss per unit = OQ X EF = Area PEFG
♦ When the firm incur losses, a question arises whether it should continue to produce or
should it shut down ?
♦ The answer to this lies in the cost structure of the firm.
♦ Total cost of a firm = Total Fixed Costs + Total Variable Costs
♦ Fixed costs once incurred cannot be recovered even if the firm shuts down.
♦ Therefore, whether to shut down or not depends on variable costs alone.
♦ If AR (Price) > AVC or AR = AVC, the firm can continue to produce even though it suffer
losses at the equilibrium level of output.
♦ If AR (Price) < AVC, the firm should shut down.
Long run Equilibrium of a Competitive Firm
♦ In a perfectly competitive market there is no restriction on the entry or exit of firms.
♦ Therefore, if existing firms are earning super normal profits in the short run, they will attract
new firms to enter the industry.
♦ As a result of this, the supply of the commodity increases. This brings down the price per unit.
♦ On the other hand, the demand for factors of productions rises which pushes up their
prices and so the cost of production rises.
♦ Thus, the price line or AR curve will go down and cost curves will go up.
♦ As a result of this, price line or AR curve becomes tangent to long run average cost curve.
This wipes out super normal profit.
♦ Hence, in long run firms earn only normal profit

Equilibrium Point : E (where MR = MC)

♦ Fig. Shows that long run LMR = LMC = LAC = LAR = Price
♦ The firm is at equilibrium at point E1.
♦ E1 is the minimum point of LAC curve. Thus firm produces equilibrium output OQ1 at the
minimum or optimum cost.
♦ In the long run under competitive market —
- Firms earn just normal profits, and
- competitive firms are of optimum size because they produce at optimum cost i.e. at the
lowest point of long run average cost curve.

MONOPOLY
Introduction :
♦ ‘Mono’ means single and ‘Poly’ means seller.
♦ So monopoly refers to that market structure where there is a single firm producing and
selling a commodity which has no close substitute.
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♦ As there is no rival firms producing close substitute,
- the monopoly firm itself is industry, and
- its output constitutes the total market supply.
Features of Monopoly Market:
♦ Following are the main features of the monopoly market:
1. Single seller and Large number of buyers.
■ There is only one seller or producer of a commodity in the market but there are many buyers.
■ As a result, the monopoly firm has full control over the supply of the commodity.
2. No close substitutes.
■ The commodity sold by the monopolist generally has no close substitutes.
■ Therefore, the cross elasticity of demand between monopolist's commodity and other commodity is zero or
less than one.
■ As. a result monopoly firm faces a downward sloping demand curve.
3. Restrictions to entry for new firms.
■ The monopoly firm controls the situation in such a way that it becomes difficult for new firms to enter the
monopoly market and compete with monopoly firm.
■ There are many barriers to the entry of new firm which can be economic, institutional or artificial in nature.
4. Price maker.
■ A monopoly firm has full control over the supply of the commodity
■ Price is solely fixed by the monopoly firm.
■ So, a monopoly firm is a “price maker".

Sources of Monopoly :
♦ The sources of monopoly may be listed as follows :
1. Patents, copyrights and trade marks.
■ Legal support provided by the government to promote inventions, to produce a particular
commodity, etc. by granting patents, copyrights, trademarks, etc. creates monopoly.
2. Control of raw materials.
■ If one firm acquires the sole ownership or control of essential raw materials, then the other
firms cannot compete.
3. Economies of large scale.
■ The monopoly firm may be very big and enjoy economies of large scale of production.
■ The cost of production is therefore low, hence it may supply goods at low prices.
■ This leaves no scope for new firms to enter the market.
4. Government control on entry
E.g. - In defense production; public utility services like water, transportation, electricity, etc.
5. Business combines.
■ Monopolies are created by forming cartels, pools, syndicates, etc. by the firms producing
the same goods to control price and output.
Average Revenue and Marginal Revenue Curves under Monopoly.
♦ Monopoly firm constitutes industry.
♦ Therefore, the entire demand of the consumers faces the monopolist.
♦ The demand curve of a monopoly firm is the same as the market demand curve of the commodity.
♦ As the demand curve of the consumers for a commodity slopes downward, the monopolist faces a downward
sloping demand curve.
♦ This means that monopolist can sell more quantity only by lowering the price of the commodity
♦ The demand curve facing the monopolist is also his average revenue curve. Thus, average revenue curve of
the monopolist slopes downwards

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♦ As the demand curve i.e. average revenue curve slopes downwards, marginal revenue curve will be below
it

Units Sold Price (Rs.) (AR) Total Revenue Rs. (TR) Marginal Revenue Rs. (MR)

1 10 10 10

2 9 18 8

3 8 24 6

4 7 28 4

5 6 30 2

6 5 30 0

7 4 28 -2

In the figure above, AR curve of the monopolist slopes downward and MR curve lies below
it.
♦ At a quantity OQ, average revenue i.e. price is OP (=QT) and marginal revenue is QK
which is less than average revenue OP (=QT).
♦ Thus, in case of monopoly —
1. AR and MR are both negatively sloped curves,
2. MR curve lies half way between the AR curve and the Y-axis,
3. AR cannot be zero i.e. AR curve cannot touch X-axis,
4. MR can be zero or even negative i.e. MR curve can touch or cut the X-axis.

Short Run Equilibrium of the Monopoly Firm (Price - Output Equilibrium)

♦ A monopolist will produce an output that maximizes his total profits.
♦ A monopolist will maximize his total profits when —
1. Marginal Cost = Marginal Revenue (MC = MR), and
2. Marginal cost curve cuts the marginal revenue curve from below.
♦ When a monopoly firm is in the short run equilibrium, it may find itself in the following situations —
1. Firm will earn SUPER NORMAL PROFITS if its AR > AC;
2. Firm will earn NORMAL PROFITS if its AR = AC, and
3. Firm will suffer LOSSES if its AR < AC.
1. Super Normal Profits (AR > AC):
The monopoly firm would earn super normal profits if at the equilibrium output AR > AC
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♦ Equilibrium point : E (where MR = MC)
Equilibrium output : OQ
Average Revenue : QL (= OP)
Average Cost : QM
Profit per unit : Average Revenue - Average Cost = QL - QM = LM
Total Profits : Total Output × Profit per unit = OQ × LM = Area PLMR

2. Normal Profits (AR = AC):

The monopoly firm would earn normal profits if at the equilibrium output AR = AC.

Equilibrium point : E (where MR = MC)

Equilibrium output : OQ
Average Revenue : QL
Average Cost : QL
Therefore, AR=AC. Hence, normal profits.
3. Losses (AR < AC):

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The monopoly firm would suffer losses, if at the equilibrium output its AR < AC.

Equilibrium Point : E (where MR = MC)

Equilibrium output : OQ
Average Revenue : QL (=OP)
Average Cost : QM
.•.Loss per unit : Average Cost - Average Revenue = QM - QL = ML
Total Loss : Total output × Loss per unit = OQ × ML = Area PLMR
■ If monopoly firm’s AR > AVC or AR = AVC, it can continue to produce though it suffer
losses at the equilibrium level of output.
Long Run Equilibrium of a Monopoly Firm :
♦ The long run equilibrium of the monopoly firm is attained where its MARGINAL COST =
MARGINAL REVENUE i.e. MC = MR.
♦ The monopoly firm can continue to earn super normal profits even in the long run.
♦ This is because entry to the market for new firms is blocked.
♦ All costs are variable costs in the long run and these must be recovered.
♦ This means that monopoly firm does not suffer loss in the long run.
♦ However, if it is unable to recover variable costs, it should shut down.
♦ Fig. Shows the long run equilibrium of a monopoly firm.

Equilibrium Point : E (where MC = MR)

Equilibrium output : OQ
Average Revenue (Price) : QL (= OP)
Long Run Average Cost : QM
.•. Profit per unit : Average Revenue - Average Cost = QL - QM = LM
Total Profits : Total Output × Profit per unit = OQ × LM = Area PLMR
♦ Thus, we find that monopoly firm continue to earn super normal profits in long run.
♦ A monopoly firm does not produce at the lowest point of LAC curve i.e. does not produce at optimum
level because of absence of competition.
♦ In other words, it operates at sub-optimum level and therefore, does not produce optimum
output.
Price Discrimination :
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♦ A monopoly firm is also the industry.
♦ A single firm controls the entire supply.
♦ Therefore, the firm has the power to sell the same commodity to different buyers at different prices.
♦ When the firm charge different prices to different customers for the same commodity, it is engaged in price
discrimination.
E.g. - Electricity supplying firm charge higher rate per unit of electricity from industrial units than domestic
consumers.
Conditions for price discrimination :
♦Price discrimination is possible under the following conditions :
1. Existence of two or more than two sub-markets.
■ The monopolist should be able to divide the total market for his commodity into two or
more sub-markets. Such division of market may be on the basis of income, geographic location, age, sex, etc.
■ E.g. on the basis of income, a doctor may charge high fees from rich patients than from poor.
2. Different markets should have different price elasticity of demand.
■ The difference in price elasticity of demand in different markets enables the monopolist to discriminate
among customers and he can charge higher price in inelastic market and lower price in elastic market.
3. No possibility of resale.
 It should not be possible for buyers to purchase the commodity from a cheaper market and sell it in
the costlier markets.
 In other words, there should be no contact among the buyers of the two markets.
4. Control over supply.
■ The supply should be in full control of the monopolist.
Price-output determination under price discrimination
♦Suppose a discriminating monopolist sell his output in market 'A' and market ‘B\
♦ Market 'A' has less elastic demand and market ‘B’ has more elastic demand.
♦ Suppose the monopolist has only one production facility then he is faced with the
questions—
1. How much to produce?
2. How much to sell in each market?
3. How much price to charge in each market?
♦ The monopolist will first decide profitable level of total output (i.e. where MR = MC) and then allocate the
quantity between two markets.
♦ The condition for equilibrium here would be —
1. MC = MRa = MRb. It means that MC must be equal to MR in individual markets separately.
2. MC = AMR (aggregate marginal revenue). It means that the monopolist must be in equilibrium not only in
individual markets but also when the two markets are treated as one.

♦ The process of price determination under price discrimination is shown in the following figure

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♦ In the fig. - MC curve intersect the AMR curve at point E
♦ Point E shows the total output is OQ.
♦ When a perpendicular EH is drawn, it intersect MRa at E1 and MRb at E2 These are the equilibrium point
of market A and B
♦ Point Ej shows that quantity sold in market A is OQ1 and the price charged is OP1.
♦ Point E2 shows that quantity sold in market B is OQ2 and the price charged is OP2
♦ Price charged in market 'A' is higher than in market 'B’.
♦ Thus, a discriminating monopolist chargers a higher price in the market ‘A’ having less elastic demand and
a lower price in the market ‘B’ having more elastic demand.
♦ The-marginal revenue is different in different markets.
E.g. - Suppose the single monopoly price is Rs. 40 and elasticity of demand in market A and B is 2 and 4
respectively.
MR in market A = ARa(e – 1/ e) = 40(2 – 1/ 2) = Rs. 20
MR in market B = ARb(e – 1/e) = 40 (4− 1/ 4) = Rs. 30
♦ It is clear from the above example that the marginal revenue is different in different markets when elasticity
of demand at the single price is different.
♦ MR is higher in the market having high elasticity and vice versa
♦ In the above example, since marginal revenue in market 'B' is more, it will be profitable for monopolist to
transfer some units of the commodity from market 'A' to ‘B\
♦ When monopolist transfers the commodity from market A to B, he is practicing price discrimination.
♦ As a result, the price of commodity will increase in market A and will decrease in market B.
♦ Ultimately the marginal revenue in the two market will become equal.
♦ When marginal revenue becomes equal in the two markets, it will no longer be profitable to transfer the
units of commodity from market A to B.
Objectives of Price discrimination:
To earn maximum profit;
to dispose off surplus stock;
to enjoy economies of scale;
to capture foreign markets etc.
Degrees of price discrimination
♦ Pigou classified price discrimination as follows:
(1) first degree price discrimination where the monopolist fix a price which take away the entire consumer's
surplus,
(2) second degree price discrimination where the monopolist take away only some part of consumer’s surplus.
Here price changes according to the quantity sold. E.g. large quantity sold at a lower price,
(3) third degree price discrimination where the monopolist charges the price according to location customer
segment, income level, time of purchase etc.

Comparison between the monopoly and perfect competition:

Similarities:
1. Both the monopolist and competitive market firm attain equilibrium when MC = MR
2. Cost curves are U – shaped in both the market situation.

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 IMPERFECT COMPETITION
Introduction
♦ We have studied two models that represent the two extremes of market structures namely perfect
competition and monopoly.
♦ The two extremes of market structures are not seen in real world.
♦ In reality we find only imperfect competition which fall between the two extremes of perfect
competition and monopoly.
♦ The two main forms of imperfect competition are —
- Monopolistic Competition and Oligopoly
MONOPOLISTIC COMPETITION
Meaning and features of Monopolistic Competition.
♦ As the name implies, monopolistic competition is a blend of competitive market and monopoly elements.
♦ There is competition because of large number of firms with easy entry into the industry selling similar
product.

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♦ The monopoly element is due to the fact that firms produce differentiated products. The products are similar
but not identical.
♦ This gives an individual firm some degree of monopoly of its own differentiated product.
♦ E.g. NUT and APTECH supply similar products, but not identical.
Similarly, bathing soaps, detergents, shoes, shampoos, tooth pastes, mineral water, fitness and health centers,
readymade garments, etc. all operate in a monopolistic competitive market.
The characteristics of monopolistic competitive market can be summed up as follows :
1. Large number of buyers and sellers
■ There are large number of firms.
- So each individual firms can not influence the market.
- Each individual firm share relatively small fraction of the total market.
■ The number of buyers is also very large and so single buyer cannot influence the market by demanding more
or less.
2. Product Differentiation
■ The product produced by various firms are not identical but are somewhat different from each other but are
close substitutes of each other.
■ Therefore, the products are differentiated by brand names. E.g. - Colgate, Close-Up, Pepsodent, etc.
■ Brand loyalty of customers gives rise to an element of monopoly to the firm.
3. Freedom of entry and exit
■ New firms are free to enter into the market and existing firms are free to quit the market.
4. Non-Price Competition
■ Firms under monopolistic competitive market do not compete with each other on the basis of price of
product.
■ They compete with each other through advertisements, better product development, better after sales
services, etc.
■ Thus, firms incur heavy expenditure on publicity advertisement, etc.

Short Run Equilibrium of a Firm in Monopolistic Competition. (Price-Output Equilibrium)

♦ Each firm in a monopolistic competitive market is a price maker and determines the price of its own product.
♦ As many close substitutes for the product are available in the market, the demand curve (average revenue
curve) for the product of individual firm is relatively more elastic.
♦ The conditions of equilibrium of a firm are same as they are in perfect competition and monopoly i.e. 1. MR
= MC, and
2. MC curve cuts the MR curve from below.
♦ When a firm in a monopolistic competition is in the short run equilibrium, it may find itself in the following
situations —
1. Firm will earn SUPER NORMAL PROFITS if its AR > AC;
2. Firm will earn NORMAL PROFITS if its AR = AC; and
3. Firm will suffer LOSSES if its AR < AC

1. Super Normal Profits (AR > AC) :

16
Equilibrium Point : E (where MR = MC)
Equilibrium output : OQ
Average Revenue : QL (=0P)
Average Cost : QM
Profit per unit : Average Revenue - Average Cost = QL - QM = LM
Total Profits : Total Output × Profit per unit = OQ × LM = Area PLMR
The firm will earn NORMAL PROFITS if AC curve is tangent to AR curve i.e. when AR=AC
2. Losses (AR < AC):

Equilibrium Point : E (where MR = MC)

Equilibrium output : OQ
Average Revenue : QL
Average Cost : QM
.*. Loss per unit : Average Cost - Average Revenue = QM - QL = ML
Total Loss : Total Output × Loss per unit = OQ × ML = Area PLMR
■ The firm may continue to produce even if incurring losses if its AR > AVC.

Long Run Equilibrium of a Firm in Monopolistic Competition

♦ If the firms in a monopolistic competitive market earn super normal profits, it attracts new firms to enter the
industry.
♦ With the entry of new firms market will be shared by more firms.
♦ As a result, profits per firm will go on falling.
♦ This will go on till super normal profits are wiped out and all the firms earn only normal profits

17
Equilibrium Point : E (where MR = MC)
Equilibrium output : OQ
Average Revenue : QR
Average Cost : QR
Therefore, AC=AR. Hence, Normal Profits.
♦ In the long run firms in a monopolistic competitive market just earn NORMAL PROFITS.
♦ Firms operate at sub-optimal level as shown by point ‘R’ where the falling portion AC curve is tangent to
AR curve.
♦ In other words firms do not operate at the minimum point of LAC curve 'L'.
♦ Therefore, production capacity equal to QQ, remains idle or unused called excess capacity.
♦ This implies that in monopolistic competitive market —
Firms are not of optimum size and each firm has excess production capacity
♦ The firm can expand its output from Q to Q, and reduce its average cost.
♦ But it will not do so because to sell more it will have to reduce its average revenue even more than average
costs.
♦ Hence, firms will operate at sub-optimal level only in the long run.

OLIGOPOLY

Introduction :

♦‘Oligo' means few and ‘Poly' means seller. Thus, oligopoly refers to the market structure where there are few
sellers or firms.

Oligopoly means a market in which there are few sellers competing with each other. It is that situation of
imperfect competition in which there are only a few firms in the market which are producing either
homogeneous product or close substitutes for one another which result into close competition among them.

According to P.C. Dooley “An oligopoly is a market of only a few sellers, offering either homogeneous or
differentiated products. There are so few sellers that they recognize their mutual dependence.”

According to J.Stigier “Oligopoly is that situation in which a firm bases its markets policy in part on the
expected behaviour of a few close rivals.”

In simple words Oligopoly is that market situation in which there are so few sellers that each of them is
conscious of the results upon the price of the supply which he individually places upon the market.

Characteristics / Features of Oligopoly

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Few firms: Under Oligopoly, there are a few large firms although the exact number of firms is undefined. Also,
there is severe competition since each firm produces a significant portion of the total output.

Barriers to Entry: Under Oligopoly, a firm can earn super-normal profits in the long run as there are barriers to
entry like patents, licenses, control over crucial raw materials, etc. These barriers prevent the entry of new firms
into the industry.

Non-Price Competition: Firms try to avoid price competition due to the fear of price wars in Oligopoly and
hence depend on non-price methods like advertising, after sales services, warranties, etc. This ensures that firms
can influence demand and build brand recognition.

Interdependence: Under Oligopoly, since a few firms hold a significant share in the total output of the industry,
each firm is affected by the price and output decisions of rival firms. Therefore, there is a lot of interdependence
among firms in an oligopoly. Hence, a firm takes into account the action and reaction of its competing firms while
determining its price and output levels.

Nature of the Product: Under oligopoly, the products of the firms are either homogeneous or differentiated.

Price rigidity: Since, any change in the price of one oligopolistic firm leads to change in the price of other
firms. Every firm tries to maintain price rigidity.

Advertising: Advertising is a powerful instrument in the hands of an oligopolist. A firm under oligopoly can
start an aggressive advertising campaign with the intension of capturing a large part of the market. Other firms
in the industry will obviously resist its defensive advertising.

Selling Costs: Since firms try to avoid price competition and there is a huge interdependence among firms,
selling costs are highly important for competing against rival firms for a larger market share.

No unique pattern of pricing behavior: Under Oligopoly, firms want to act independently and earn maximum
profits on one hand and cooperate with rivals to remove uncertainty on the other hand.

Depending on their motives, situations in real-life can vary making predicting the pattern of pricing behavior
among firms impossible. The firms can compete or collude with other firms which can lead to different
pricing situations.

Indeterminateness of the Demand Curve: Unlike other market structures, under Oligopoly, it is not possible
to determine the demand curve of a firm. This is because on one hand, there is a huge interdependence among
rivals. And on the other hand there is uncertainty regarding the reaction of the rivals. The rivals can react in
different ways when a firm changes its price and that makes the demand curve indeterminate.
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Types of Oligopoly

Pure or Perfect: One of the types of oligopoly is the perfect oligopoly. This occurs when the product is
homogeneous in nature (e.g. Aluminum industry).

Differentiated or Imperfect : Another of the types of oligopoly is an imperfect oligopoly. This occurs when
product differentiation exists (e.g. Talcum powder industry).

Open and Closed

Open – New firms can enter the market and compete with existing firms.

Closed – Entry into the market is restricted.

Collusive and Competitive

Collusive – This occurs when few firms come to an understanding with respect to the price and output of the
products.

Competitive / Non- collusive – This occurs when there is a lack of understanding between the firms and they
invariable compete with each other.

Partial or Full

Partial – This occurs when one large firm dominates the industry. Also, this firm is the price leader.

Full – This occurs when there is no price leadership in the market.

Syndicated and Organized

Syndicated – The situation where the firms sell their products through a centralized syndicate.

Organized – The situation where the firms create a central association to fix prices, quotas, output, etc.

Strategies of Oligopolist
Businesses occasionally make an effort to reduce the risk associated with acting independently and making
price agreements with one another. That is collusion. Either official or informal collusion occurs.

20
Price leadership or cartel behavior are two examples. A cartel is an organization of separate businesses
operating in the same sector that adhere to the same rules on product distribution, output, price, and profit
maximization.

The foundation of price leadership is deliberate collusion. When there is price leadership, one large or
dominating company sets the product price while the other companies agree to it.
Different Pricing Strategies
1. Price Wars
This occurs when one firm reduces their prices to maximise the amount of products sold, leading to greater
profit being made. This results in the competitor firm losing market share and making less profit as they will
make less sales due to their prices being higher. Consequently, they want to also cut their prices. This starts a
price war as now the original firm wants to reduce their prices further.
2. Price Leadership
In a market where a dominant firm exists, they will act to change prices as they know other firms will follow.
This is because price wars and other forms of retaliation are likely to occur within this market. As a result, the
dominant firm becomes the established leader.
3. Predatory Pricing
This is usually a short-term measure which involves a firm cutting prices below the average cost of production
to push its competitors out of the market. Once the other firms have been forced out of the market, it will raise
its prices again to make supernormal profits.
4. Limit Pricing
This occurs when firms cut prices to deter entry of other firms into the market. Competitors looking to enter
the market will be discouraged as they would not be able to compete with the higher-cost firms already existing
within the market.
Non-Price Competition
This is when firms compete without changing its prices, in order to make demand for their products price
inelastic. Instead, it uses other methods to increase sales, such as:
 Advertisement
 Product Quality
 Customer Loyalty
 Free Gifts

Price and output decisions in a collusive Oligopolistic Market:

21
In the case of collusive oligopoly the competing firms collude in order to reduce the uncertainties cropping out of
the inherent rivalries among them. The colluding firms are usually bound by agreements whereby they seek to
maximise the joint profit of the group. OPEC is an example of such ype of collusion.

Cartels

Mainly, cartels are formed among the firms due to the uncertainty arising out of mutual interdependence.
Typically, there can be two types of cartels, viz.,

a) cartels aiming at joint profit maximisation

b) cartels aiming at the sharing of markets

a) Cartels Aiming at Joint Profit Maximisation

The analysis of joint profit maximisation cartel is based on the following assumptions:

1. Only two firms A and В are assumed in the oligopolistic industry that forms the cartel.

2. Each firm produces and sells a homogeneous product that is a perfect substitute for each other.

3. The number of buyers is large.

4. The market demand curve for the product is given and is known to the cartel.

5. The cost curves of the firms are different but are known to the cartel.

6. The price of the product determines the policy of the cartel.

7. The cartel aims at joint profit maximisation.

Often cartels are formed for maximising the industry profit. The situation is similar to that of a multi-plant
monopolist. Generally, the firms appoint a central agent to which they delegate the authority to decide the total
quantity to be produced and the price to be charge, to maximise the joint profit. It is the central agency, which
allocates the output to be produced among the firms, and it distributes the joint profit. To be able to do this, the
central agency must have an access to the cost conditions of the firms. This knowledge is crucial as allocation and
distribution depend crucially on them.

To analyse let us consider two profit maximising firms A and B forming a Collusive Oligopoly cartel for joint
profit maximisation. The cost conditions are represented in terms of the marginal and average cost curves (MC
and AC respectively).
22
Based on the individual MC curves of the two firms, we derive the aggregate MC curve (MC) as the horizontal
summation of MC1 and MC2. Given the market demand curve (DD1), by equating MR with AMC, we can derive
the industry output and the corresponding industry price as shown in Figure.

The individual output of each firm is obtained by drawing a line through the point E (where MR = MC) and
extending it back to the two adjoining figures whereby we get MC1 = MC2 = MC = MR. Dropping perpendiculars
from the point of intersection of the line MC1 = MC2 = AMC = MR we get the output to be produced by each
firm.

We find that the firm having the flatter MC, implying lesser per unit cost, produces the more output. But this by
no way means that the firm with the flatter MC or the least cost gets a bigger share of the profit of the cartel.

Profits are allocated on basis of: Individual outputs, Historical market shares, Production capacity of firms and
Bargaining power of individual firms.

Drawbacks in Cartels

There might arise situations when the joint profit maximisation of the firm may not be achieved. The main reasons
could be the following:

1) Mistakes in the estimation of the market demand.

2) Mistakes in the estimation of the MC

3) Slow process of cartel negotiations

4) ‘Stickiness’ of the negotiated price

5) ‘Bluffing’ nature of the members

6) Existence of high-cost firm

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7) Government interference

b) Market Sharing Cartels

This form of collusion is more popular. Here the firms agree to share the market but at the same time maintain a
considerable degree of freedom regarding product differentiation, selling activities and other business decisions.
There are two basic methods of sharing the market:

(1) Non-price competition and (2) Quota system

1) Non-price competition

In this form of a ‘loose’ cartel, the member firms agree on a common price, at which each of them can sell any
quantity demanded. The price is set by the process of bargaining, with the low-cost firms pressing for a lower
price and the high-cost ones for a higher price. The agreed price must be such as to allow some profits to all the
members. The firms agree not to sell at a price below that decided by the cartel, but they are free to Collusive
Oligopoly vary the style of their product and/or their selling activities. In other words, firms compete on a non-
price basis.

2) Quota system

It is an agreement on the quantity that each member may sell at the agreed price(s), if the costs are identical, then
the firms share the market equally among themselves. If costs differ, then the share of the market is decided by
bargaining. The final quota of each firm depends on the level of it’s cost as well as on it’s bargaining skill. Most
often adopted criteria for determining quotas are ‘past-period sales’ and ‘productive capacity’. Another popular
method of determining quota is that of geographical sharing of the market.

Price Leadership

In this form of collusion, one firm sets the price and the rest follow. This helps to reduce the uncertainty about the
competitors’ reactions, even though the firms may have to depart from their profit maximising position. Price
leadership is more widespread than cartels because it allows the members complete freedom regarding their
product and selling activities.

There are various forms of price leadership. The most common types are:

1) Price leadership by a low-cost firm

2) Price leadership by a large (dominant) firm Collusive Oligopoly

24
3) Barometric price leadership.

In this kind of a setup, the leader sets it’s price according to the marginalistic principle (MR = MC) and the
followers merely act as price takers. Generally, therefore the followers do not end up maximising profit.

Low-Cost Price Leader Model

Let us consider a duopoly (firms A and B) selling a homogeneous product at different costs. Let us also assume
that firm A is the price leader. The firms may have equal market as shown in Figure (shown by a common market
demand curve)

 In Figure the different cost structures are represented by the two marginal cost curves MCA and MCB
with MCA< MCB.
 Both the firms face the same market demand curve d so the aggregate demand curve is D.
 Firm A being the leader equates MRA with MCA and arrives at the price OPA .
 Firm B would accept the price even though it is not the profit-maximising price. The profit maximising
price for B is OPB.
 With this kind of an arrangement, firm B does make some profit. Firm A’s profit is given by the shaded
area. Finally, we see that the two firms produce the same level of output.

Model of the Dominant Firm

In this case, it is assumed that there is a large dominant firm, which has a considerable share of the total
market, and some smaller firms each having a small market share.

25
It is assumed also that the dominant leader knows the MC curves of the smaller firms. The leader adds
these curves horizontally to arrive at the total supply by the small firms at each price.

With this knowledge, the leader can obtain its own demand curve.

At each price, the demand for leader is the difference between total demand D at that price and total supply
S1. Accordingly, we can derive dL.

The profit maximising output level is determined by setting MR = MC, whereby output is Ox and price is
OP.

The other small firms would also sell at P, following the leader, and selling output, which does not
maximise profit

At price OP, PB gives the small firms supply and BC the leader’s supply. At price OP3, AD2 gives the
leader’s supply.

Barometric Price Leader Model

In this model, it is formally or informally agreed that all firms will follow the changes of the price of a firm,
which is considered to have a good knowledge of the prevailing conditions in the market and can forecast
better than the others on the future developments in the market.

The firm chosen as the leader is considered as the barometer, reflecting the changes in economic
environment. Usually it is a firm, which from past behaviour has established the reputation of a good
forecaster of economic changes.

NON-COLLUSIVE OLIGOPOLY-SWEEZY’S KINKED DEMAND CURVE MODEL (PRICE-

RIGIDITY)

26
Usually, in Oligopolistic markets, there are many price rigidities. In 1939, Paul Sweezy used an
unconventional demand curve – the kinked demand curve to explain these rigidities.

Reason for the kink in the demand curve

It is assumed that firms behave in a two-fold manner in reaction to a price change by a rival firm. In simple
words, If a seller increases the price of his product, his rivals do not follow the price increase. Therefore, the
market share of the firm reduces significantly as a result of the price rise.

On the other hand, if a seller reduces the price of his product, then the rivals also reduce their price to bring
it at par with the price reduction of the firm.

Why the price rigidity?

As can be seen above, a firm cannot gain or lose by changing its price from the prevailing price in the
market. In both cases, there is no increase in demand for the firm which changes its price. Hence, firms stick
to the same price over time leading to price rigidity under oligopoly.

In the figure above, KPD is the is the kinked-demand curve (AR curve) and OPo is the prevailing price in
the oligopoly market for the OQ product of one seller.

27
 If one seller increases the price above OPo and the rival sellers don’t and keep the prices of their products at
OPo, then it will lead to the product becoming costlier than the others.

Subsequently, the demand for the costlier product will fall significantly. This is seen in the demand curve of
a firm for any price above OPo or the KP section of the curve, is relatively elastic. The high elasticity
reduces the demand significantly as a result of the price increase.

On the other hand, if the seller reduces the price below OPo, the rivals also follow the price cut to prevent
their demand from falling. This is seen in the demand curve of a firm for any price below OPo or the PD
segment of the curve is relatively inelastic. The low elasticity does not increase the demand significantly as
a result of the price cut.

Due to the difference in the elasticities, the MR curve becomes discontinuous corresponding to the point of
change in elasticity of the demand curve. The kink represents this. At the output < OQ, the demand curve is
KP and the corresponding MR curve is KA. For output > OQ, the demand curve is PD and the
corresponding MR curve is BMR.

 Accordingly, MR has gap. MC equalizes MR in the gap determine OPo price and OQ output to be sold.
 If due to increase in cost, marginal cost curve shift upward from MC2 to MC1, it again intersected MR
within the gap resulting into no change in price or quantity.
 In case, cost decreases, marginal cost shifted to MC3 downward. Again MC3 intersect MR in the
discontinued gap. Price and output remains the same.
 It becomes clear that if change in cost conditions affects the MC1 within the gap of MR, it does not
bring any change in price and output. It is evident that price under oligopoly tends to be rigid unless
drastic changes takes place in the cost conditions or demand.

Market Types
Points Monopolistic
Perfect
Monopoly Oligopoly
Competition Competition

i. Number of
Many One Many Few
sellers

ii. Product Unique having Homogeneous or

Homogeneous Differentiated
no substitutes Differentiated
iii. Selling
No Negligible High High
Cost
iv. Degree of Limited due to
No Control. Price Full control.
control over product Limited
taker. Price maker
28
 price differentiation.

v. Demand Horizontal straight Downward

(or AR) Curve line parallel to x-axis Downward sloping Indeterminate
sloping
vi. Price
elasticity of Infinite P = MC Small P > MC Large P > MC Small
demand

AGRICULTURE MARKET COMMITTEES

Summary Of Agriculture Produce
The Agricultural Produce Marketing Committee (APMC) in India protects farmers by ensuring fair treatment,
controlling prices, and overseeing agriculture trading. Established by state governments, it prevents pressure
from lenders and middlemen. The history of agricultural market regulation dates back to the colonial era, with
the first coordinated market established in 1886. The Agricultural Produce Markets Regulation (APMR) Acts
were adopted in most states in the 1960s and 1970s. The APMC's objectives include creating an effective
marketing strategy. promoting agricultural exports and agri-processing, and establishing efficient
infrastructure for agricultural output marketing. The Model APMC Act 2003 increased the viability of contract
farming, provided opportunities for farmers and individuals to establish markets, relaxed licensing regulations,
and utilized revenue to improve market infrastructure. The e-NAM (National Agriculture Market) links the
existing APMC and forms a unified national market for agricultural commodities.
Background Of Agriculture Produce
The history of agricultural market regulation in India dates back to the colonial era when raw cotton was
grown to attract the British government. The first coordinated market was established under the Hyderabad
Residency Order in 1886, followed by the Grain Market and Berar Cotton Act in 1887. The Royal Agricultural
Commission recommended the establishment of organized markets in 1928 to enhance trade methods and
market properties in India. The Indian Government created a model law in 1938, which was distributed to all
states. During the 1960s and 1970s, the Agricultural Produce Markets Regulation (APMR) Acts were adopted
to cover all critical wholesale assembly marketplaces. In 2015, the Union Budget proposed the establishment
of a United National Agriculture Market. After independence, many states enacted the Agricultural Market
Ordinance and established market grounds and sub yards. The Agricultural Markets Commission (APMC)
was established in each market area to develop and enforce rules to prevent exploitation of farmers by
beneficiaries and intermediates.
Introduction Of Agriculture Produce
The Agricultural Produce Market Committee (APMC) is a state government run system that regulates
agricultural produce and livestock in the market area. Its purpose is to prevent distress sales by farmers, who
are often exploited by creditors and intermediaries. APMC ensures fair prices and timely payments for
produce, and regulates agricultural trading practices. This results in the elimination of unnecessary
intermediaries, improved market efficiency, and protection of producer-seller interests.
Need For APMC Act
Before independence, food and agricultural raw material prices were hard for the government to regulate.
However, following independence, things drastically changed.
* The protection of farmers' interests took priority. In order to boost agricultural output, pricing incentives
have to be given to farmers.

29
* Furthermore, a weakness in agricultural administration was brought to light by multiple instances of farmers
being taken advantage of by moneylenders and debt collectors.
Interest rates, infrastructure, marketing expenses, and selling prices are all negatively impacted by
incompetent governance.
In order to guarantee proper market conduct, the Indian government passed the APMC Act.
Objective Of APMC
* To shield farmers from lenders and other middlemen, the APMC committee was founded.
* These committees were also supposed to make sure that farmers received their payments on schedule from
the APMC auctions an the farm-to-retail price did not increase unnecessarily.
Additionally, farmers can use APMCs-such as go-downs and the like-for storage.
Through APMCs, farmers were also expected to be able to sell their produce directly to customers.
* APMCs were also used to control variations in prices.
Constructing a productive marketing infrastructure.
Processing agriculture and promoting exports.
Create policies and processes for setting up a productive infrastructure for the commercialization of
agricultural produce.
Operation Of APMC
The APMC, or Agricultural Produce Market Committee, makes sure that all farmer-produced goods are
delivered to market and that auctions are used for transactions.
* The Mandi, or small market area, is set up in different places throughout the states under the direction of the
Agricultural Produce Market Committee [APMC]. These marketplaces geographically divide the state.
* Licenses to operate in a market are issued to traders by the Agricultural Produce Market Committee [APMC).
The Agricultural Produce Market Committee [APMC] has made it illegal for retail stores, wholesalers, and
mall owners to buy vegetables straight from farmers.
Model APMC Act Of 2003
In 2003, the Indian government created a model Agricultural Produce Market Committee (APMC) Act in an
effort to start reforming and making the agricultural markets in States uniform.
This Act's provisions included:
channels for new markets other than APMC markets

⚫ marketplaces for private wholesale purchase directly

 An agreement between farmers and buyers

 As per the APMC Act of 2003, the Market Committees were accountable for:
 Ensuring transparency in the market area's pricing structure and transactions
 providing farmers with market-driven extension services
 Ensuring farmers receive payment for their produce sold on the same day
 Encouraging agricultural processing to raise the produce's valuable
30
  Announcement of the dates and availability for the public when the agricultural product is marketed
 Public-Private Partnerships (PPPs) in various markets are being encouraged and established.
Challenges To The APMC Act
The government introduced eNAM and the APMC Act of 2003 to address the issues listed below regarding
APMC.
* fragmentation of the market
* High market rates or incidents related to fees
* Few marketplaces
Reduced credit limit
* Restrictions apply to licenses.
Unbalanced market intelligence
E-NAM And APMC
In order to establish a single national market for agricultural products, all of India's APMC mandis are
connected via the National Agriculture Market (NAM), an electronic trading platform. All APMC-related data
and services are available in a single window on the e-NAM portal, including:
* arrivals of goods and their pricing,
* proposals to purchase and sell, and other services, like the ability to respond to trade offers
While agricultural produce is still moving through the mandis, the NAM reduces information irregularity and
transaction costs. The agri- marketing legislation of each state, which separates the state into market regions
overseen by individual Agricultural Produce Market Committees and enforcing their own set of marketing
rules, including fees, can be followed by the states in managing agriculture marketing.
The benefits that eNAM provides to APMC are:
 Digitally recorded financial information.
 Minimizing the number of employees needed.
 Complete trading statement.
 Recording of the arrival of produce in real time.
 Analyze arrival, trade activity, and cost patterns.
 Free software to automate transaction recording and integrate systems.
Model APMC Act 2017
* The APMC Act (Agricultural Produce Marketing Committee) 2003 was to be replaced by the Model
Agriculture Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017 (APLM act), which was
suggested in April 2017.
By helping farmers contact with customers directly so they may find the greatest price for their commodities,
the Act seeks to be an agricultural reform
* Every 80 kilometers, a controlled wholesale agri-market is to be established, according to the new model
law.
It has been suggested that licenses be given to new private participants and dealers who create a wholesale
market in order to carry this out.

31
Cold storages, private market yards, and warehouses would all be permitted to operate as controlled
marketplaces.
The state's regulated agri-market will be open to transactions by farmers and traders. There aren't any
additional costs for distinct markets.
By eliminating the notion of a "notified market area" from the Agricultural Produce and Livestock Market
Committee's regulation (APLM), this legislation ends market fragmentation within the State/Union Territory
(UT).
The Act permits geographically unlimited trade in agricultural products, including cotton, horticultural crops,
cattle, fisheries, and poultry, in addition to cereals, pulses, and oilseeds.
Limitations Of APMC
The Agricultural Produce Market Committee's shortcomings are as follows:
* APMC monopoly: Better clients are closed away to farmers, and original suppliers are closed off to
consumers.
* Entry barriers: The cost of a license is very expensive in many markets. In several markets, farmers were
not allowed to operate. Furthermore, apart from the license fee, the stores' value and rent are relatively high,
which inhibits competition. Typically, APMC is run from the village or city by a select elite group.
*Cartelization: It is a common occurrence for agents within an APMC to band together in order to intentionally
avoid making higher bids. Produce is purchased for a price that was made up, then sold for a higher amount.
The harvest is subsequently divided among the participants, keeping farmers in the dark.
*High levies, taxes, and commissions: Farmers' expenses are increased by their need to pay marketing fees,
commissions, and the APMC cess.

Model Contract Farming Act 2018

A revised version of the Model Agriculture Act was proposed in May 2018 and is called the Model Agriculture
Produce and Livestock Contract Farming and Services (Promotion and Facilitation) Act, 2018.
* The previously mentioned Act brought the idea of contract farming to India for the first time. In India, the
Act served as a model law for contract farming.
*Contract Farming (CF) is defined as "a farming system in which bulk purchasers, including agro-
processing/exporting or trading units, enter into a contract with the farmer(s) to purchase a specified quantity
of any agricultural commodity at a pre-agreed price."

Model Contract Farming Act 2018 - Salient Features

* Rather than regulating, the Act is encouraging and persuasive.

32
* The advantages of contract farming for farmers were particularly highlighted in the Act
* Introduction of production, delivery, and pre-production services under a service contract.
The Act excluded contract farming from the APMC Act's jurisdiction.
For contracted producers, crop and livestock insurance is in existence.
APMC Reforms
The Indian government enacted three acts in 2020, comprising reforms however these were withdrawn after
nation wide protests-
*The Farmer's Produce Trade and Commerce (Promotion and Facilitation) Act
* The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020
* The Essential Commodities Amendment Act
Considering the fact that cartelization has been a significant problem for APMCs, farmers opposed these Acts
because they believe they will deteriorate APMC conditions and weaken the Minimum Support Price. This
has led to protests by farmers in Punjab, Haryana, and the western regions of Uttar Pradesh.
Conclusion Of Agriculture Produce
Modern farming methods produced excess yield, which altered the way Indian agriculture was done for
subsistence. Roughly 33% of the production of food grains and pulses, and almost all of the production of
cash crops like cotton, sugarcane, oilseeds, and so on, are sold after the farmers' needs for their own use are
satisfied. An enhanced marketing system will accelerate the growth of agro-based companies, especially in
the processing sector.

Numerous laws currently in effect aim to address various issues as intended by current reforms, such as the
Model Agricultural Produce and Livestock Marketing (promotion and facilitation) Act, 2017, the Model
Contract Farming Act, 2018, the electronic national agriculture market (eNAM), and the Model Agriculture
Land Leasing Act, 2016.
However, the fact that agriculture is a state topic makes it difficult for these reforms to actually take effect.
Therefore, adhering to the cooperative federalism spirit is necessary to make India's farmers really Atmanirbar.

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