INDUSTRY DEMAND / COMPANY DEMAND
INDUSTRY DEMAND / COMPANY DEMAND
Demand
Demand for a commodity refers to the quantity of the commodity which an individual/ consumer or a household is willing to purchase per unit of time at a particular price.
Term ‘company demand’ denotes demand for a particular product of a particular firm. When we add demand for a particular product faced by all the companies producing that product, we get what is called an industry demand. Industry demand refers to the total demand for the product of a particular industry. It may be noted that we can add up the demand of various firms only if either all firm produce exactly the same commodity or these should be close substitutes for each other. Eg. Tooth paste.
If the products in the industry are similar or close substitutes, we can get industry demand schedule which represent the relation of price of the product in the industry with the total quantity of the goods demanded from all the firms in the industry.
But it must be not that from the point of view of a manager the knowledge of industry is much less important as compared to that of the company demand. He needs to know the share of his company’s demand Vis –a -Vis the share of other companies’ demands in the industry. However the industry demand is a useful guide for studying the company demand and the projection of industry demand is the initial step in forecasting company’s demand or sales.
Since individual company faces competition from its rivals in the industry, the company demand is generally more price elastic than the industry demand. However, the degree of price demand relationship of company demand depends upon the structure of the market.
Market structure is generally classified on basis of two aspects;
1. The number of seller 2. The degree of product differentiation
Considering the above aspects of market structure, we can divide the market into following four broad categories:
1. Monopoly: since monopoly implies a situation where there is a single seller of a product, the firm is itself an industry there. Thus in case of a single firm / monopoly, the company demand curve is same as the industry demand curve.
2. Oligopoly: it is a situation where there are only a small number of firms. Theses firm may be selling products which are either standardized or differentiated. The former is called homogenous oligopoly, while the latter is known as differentiated oligopoly.
Homogenous oligopoly : since product are standardized , the demand in the market is highly transferable the firm facing such competition has , therefore to depend on price policies of the rivals i.e. the demand curve of the company remains uncertain as it depends upon the actions and reactions of its rivals.
Differentiated oligopoly: like incase of radios, scooter, stereos, toothpaste etc, each seller tries to differentiate his product from the other seller. Here the demand for individual firm’s products is therefore less closely related to the demand for his industry. More over, the fear of price competition becomes diluted here. In differentiated oligopoly price competition gives way to non price competition like advertising, sales promotion activity, brand name. The company has independent demand function and demand curves, showing the impact of price spreads, sales promotion activity, quality difference etc on the demand for the product of the firm. Another difference is that because of non price competition and price advantage, the market share of a company is more volatile in the former than in the latter case.
3. Pure competition or perfect competition. In case of pure competition there are a large no of buyer and seller with perfect knowledge of market and competition is therefore very intense. An individual company will have to sell at the prevailing price in the market, which makes demand curve for its product perfectly elastic while, on the other hand, the industry demand curve is the usual negatively sloped one.
4. Monopolistic competition: This situation falls between monopoly and pure competition. There are many sellers (but not in large no) while there are large no of buyers. Each firm tries to introduce some differentiation in its product. This is a situation which often prevails in real life, and is, therefore, of maximum interest for a managerial economist. Due to differentiation in there product each firm has segment of customers attached to its products which provides the firm with some control over the market price. When the degree of product differentiation is quite significant firms control over market price becomes as powerful as a monopolist. But demand curve of a monopolistic competitor differ from that of monopolist because demand in case of the former is affected by no of rival firm, there products, prices etc. Thus in case of monopolistic competition , the firms demand is more volatile than the industries demand and companies demands more price elastic than the industry demand.
Demand
Demand for a commodity refers to the quantity of the commodity which an individual/ consumer or a household is willing to purchase per unit of time at a particular price.
Term ‘company demand’ denotes demand for a particular product of a particular firm. When we add demand for a particular product faced by all the companies producing that product, we get what is called an industry demand. Industry demand refers to the total demand for the product of a particular industry. It may be noted that we can add up the demand of various firms only if either all firm produce exactly the same commodity or these should be close substitutes for each other. Eg. Tooth paste.
If the products in the industry are similar or close substitutes, we can get industry demand schedule which represent the relation of price of the product in the industry with the total quantity of the goods demanded from all the firms in the industry.
But it must be not that from the point of view of a manager the knowledge of industry is much less important as compared to that of the company demand. He needs to know the share of his company’s demand Vis –a -Vis the share of other companies’ demands in the industry. However the industry demand is a useful guide for studying the company demand and the projection of industry demand is the initial step in forecasting company’s demand or sales.
Since individual company faces competition from its rivals in the industry, the company demand is generally more price elastic than the industry demand. However, the degree of price demand relationship of company demand depends upon the structure of the market.
Market structure is generally classified on basis of two aspects;
1. The number of seller 2. The degree of product differentiation
Considering the above aspects of market structure, we can divide the market into following four broad categories:
1. Monopoly: since monopoly implies a situation where there is a single seller of a product, the firm is itself an industry there. Thus in case of a single firm / monopoly, the company demand curve is same as the industry demand curve.
2. Oligopoly: it is a situation where there are only a small number of firms. Theses firm may be selling products which are either standardized or differentiated. The former is called homogenous oligopoly, while the latter is known as differentiated oligopoly.
Homogenous oligopoly : since product are standardized , the demand in the market is highly transferable the firm facing such competition has , therefore to depend on price policies of the rivals i.e. the demand curve of the company remains uncertain as it depends upon the actions and reactions of its rivals.
Differentiated oligopoly: like incase of radios, scooter, stereos, toothpaste etc, each seller tries to differentiate his product from the other seller. Here the demand for individual firm’s products is therefore less closely related to the demand for his industry. More over, the fear of price competition becomes diluted here. In differentiated oligopoly price competition gives way to non price competition like advertising, sales promotion activity, brand name. The company has independent demand function and demand curves, showing the impact of price spreads, sales promotion activity, quality difference etc on the demand for the product of the firm. Another difference is that because of non price competition and price advantage, the market share of a company is more volatile in the former than in the latter case.
3. Pure competition or perfect competition. In case of pure competition there are a large no of buyer and seller with perfect knowledge of market and competition is therefore very intense. An individual company will have to sell at the prevailing price in the market, which makes demand curve for its product perfectly elastic while, on the other hand, the industry demand curve is the usual negatively sloped one.
4. Monopolistic competition: This situation falls between monopoly and pure competition. There are many sellers (but not in large no) while there are large no of buyers. Each firm tries to introduce some differentiation in its product. This is a situation which often prevails in real life, and is, therefore, of maximum interest for a managerial economist. Due to differentiation in there product each firm has segment of customers attached to its products which provides the firm with some control over the market price. When the degree of product differentiation is quite significant firms control over market price becomes as powerful as a monopolist. But demand curve of a monopolistic competitor differ from that of monopolist because demand in case of the former is affected by no of rival firm, there products, prices etc. Thus in case of monopolistic competition , the firms demand is more volatile than the industries demand and companies demands more price elastic than the industry demand.
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