A few days back me and some friends my of mine got together for tea. Tea get togethers involve some good food, good conversations, and the obvious element ‘tea’. During this tea session the conversation twisted and turned from one topic onto to the other. One of the topics that my friend shared was how she cannot bargain while shopping and how her mother is excellent at it. As per my knowledge bargaining is done while street shopping and not while you shop in big stores or malls where you know the price of the item you buy by the price tag that accompanies it. The economics teacher in me ventured to ask her further about why she could not bargain and why she thought that her mother is good at it. This led me to understand something economists have known for a long time about how some markets function. It enhanced my understanding how the theory is enacted by its players in real time.
To give you a brief about the theory, markets can be of two major types; perfectly competitive and imperfectly competitive. It is better to explain these markets by their characteristics using examples. Firstly, a market is a place where buyers and sellers of product(s) come together. A market for a small business like a photocopier(copier) who provides you with paper copies of any printed material is an example of a business operating in a perfectly competitive market. Perfectly competitive markets display some characteristics which are as follows –
Firstly, there are many buyers and sellers in the markets. Secondly, the product offered by all the sellers is similar in its characteristics. Thirdly, it is very easy for anyone to enter or exit this market in the capacity of a seller. Finally, both the buyers and sellers are well informed about the market especially about the prices. Apply these characteristics to the copier business, one easily identifies that it is in a perfectly competitive market.
Imagine that an experienced bargain shopper wants to buy chappals in a street market. There are many shops who sell the chappals and many buyers who want to buy the product as well. This satisfies the first condition of perfect competition. As many vendors offer similar kind of chappals the second condition of perfect competition is fulfilled. Also, it is easy for anyone to set up shop at a street market, thus satisfying the third condition for perfect competition.
To give you a brief about the theory, markets can be of two major types; perfectly competitive and imperfectly competitive. It is better to explain these markets by their characteristics using examples. Firstly, a market is a place where buyers and sellers of product(s) come together. A market for a small business like a photocopier(copier) who provides you with paper copies of any printed material is an example of a business operating in a perfectly competitive market. Perfectly competitive markets display some characteristics which are as follows –
Firstly, there are many buyers and sellers in the markets. Secondly, the product offered by all the sellers is similar in its characteristics. Thirdly, it is very easy for anyone to enter or exit this market in the capacity of a seller. Finally, both the buyers and sellers are well informed about the market especially about the prices. Apply these characteristics to the copier business, one easily identifies that it is in a perfectly competitive market.
Imagine that an experienced bargain shopper wants to buy chappals in a street market. There are many shops who sell the chappals and many buyers who want to buy the product as well. This satisfies the first condition of perfect competition. As many vendors offer similar kind of chappals the second condition of perfect competition is fulfilled. Also, it is easy for anyone to set up shop at a street market, thus satisfying the third condition for perfect competition.
It’s only the information about the price of product that is not known. One of the main reasons why it so is because the market for chappals is not as big as the market for photocopiers. Hence, the seller has all the incentive to quote a higher price as the buyer is not aware of the price of the product. This will earn the seller higher profits whereas as the buyer will be at a loss for paying higher price. The only way the buyer can gain is buy discovering the price of the product. This will complete the final condition of a perfectly competitive market i.e. buyer and seller are perfectly informed about the market.
The way in which the price is discovered by the buyer (bargainer) is what we know commonly. The buyer approaches the first seller and asks for a price that is well below the selling price set by the seller. Bargaining ensues usually without a sale. The buyer then moves on to another seller but with the information about the price at which a seller might settle given that the products are similar. The process may be repeated with another seller till the price is discovered by the buyer leading to fulfillment of the final condition of a perfectly competitive market. Thus, those who complain that they cannot bargain in a market offering similar products should de facto accept a loss in that purchase.
The way in which the price is discovered by the buyer (bargainer) is what we know commonly. The buyer approaches the first seller and asks for a price that is well below the selling price set by the seller. Bargaining ensues usually without a sale. The buyer then moves on to another seller but with the information about the price at which a seller might settle given that the products are similar. The process may be repeated with another seller till the price is discovered by the buyer leading to fulfillment of the final condition of a perfectly competitive market. Thus, those who complain that they cannot bargain in a market offering similar products should de facto accept a loss in that purchase.
