Question

The Indian FMCG Market is a highly competitive market with a large number of national and global players competing on margins. The stock turnover is high as FMCG products are frequently consumed and have a short shelf life. The presence of large number of sellers is highlighted by the fact that the Indian Soap and Detergent market has 700 companies competing to sell their products. The major players across the country are ITC Limited, Procter & Gamble and Hindustan Unilever Limited (HUL) HUL has a large share of market in soaps and detergent segment but it still faces a growing number of competitions from various Competitors in the market. In the detergent sector it faces competition from Procter and Gamble (P&G), Henkel, Rohit Surfactants Pvt Ltd (RSPL) and Nirma (now out of the market). In the soap sector it faces competition from Godrej P&G, Wipro, ITC and in health care sector from Reckitt Increase in disposable income in hands of both rural and urban consumers gave an opportunity to the rural consumers to shift from unbranded unorganized products to branded FMCG products. The increasing demands led to new firms entering the market When the competition increased the existing firms were forced to reduce their price in order to meet the competition For instance, Nirma was launched in the detergent industry at a low price targeted to cater to the needs of middle-priced and popular segment. The success of Nirma forced HUL to launch an even lower priced product. Thus, Wheel and Rin were introduced by HUL to maintain its market share. Nirma failed to innovate its brand and soon died out To maintain brand loyalty, each brand in this market tred to innovate Their products were deliberately made different in terms of colour packaging, teatures, packing, size and shape For Instance, Ariel, the detergent laundry line for P&G, is available in a variety of forms. Ariel Colour Is a detergent used mainly to protect colour of clothes Anel Stain remover is a stain pre treatment product, Ariel Quick wash is used to wash clothes in the quick wash cycle and so on To create brand awareness.firms are required to Incur some additional costs such as advertising sales promotion, salaries of marketing stat etc to promote the product The main aim is to inform persuade and remind the buyers of the availability of the product The strategy of aggressive advertising is adopted HUL and Procter & Gamble are two renowned companies for portrayal of advertisement for. Aggressive television commercials were shown targeting each other's brand New Brands like Ghari entered the market after the fall f Nirma in 2000 Tide launched by P&G is now at the third position in the market after Ghori and Wheel with a shore of 13.5%

Read the above and answer the questions below in a. Identify the market structure in the above paragraph and justify your answer.
b. With the entry and exit of firms, how is long run equilibrium reached in this market structure ?
C. How far can high selling costs in this market be justified ?

the question carries 15 marks so need big answers small won't work.thankyou

Answer 1

a. Based on the article or the paragraph presented in the question the FMCG market in India consists of almost 700 different local/domestic and international/global companies and brands with numerous top leading companies or brands in the market such as ITC Limited, P & G, Hindustan Unilever, Godrej, Wirpo, and so forth. The increasing demand for FMCG products collectively due to higher affordability and average income level of the people in the country and other demographic changes among the existing consumers or buyers in the market constitute a major economic opportunity for the new entrants in the market thereby inducing many new companies and brands to enter in the market which consequently increases the overall market competition and generates intense price war or competition among the existing companies and brands. This also essentially signifies that the FMCG market in India is devoid of any significant and major economic, administrative and legal barriers to entry and the new firms or companies can conveniently enter into the market highlight the extent of market flexibility in this instance and the individual companies and brands have some control over their respective product prices reflecting their market power. Furthermore, aggressive and proactive advertisement and product marketing by various companies and brands in the market also signifies the extent of market competition as new firms or companies increasingly enter the market. Different individual bands and companies are also coming up their own unique products having certain qualitative and characteristics differences with the products of other companies and brands which leads to higher product differentiation or diversification in the market. Therefore, based on an overview of the FMCG market in India, it can be reasonably deduced that the market structure is fairly competitive with some strong and convincing tendencies towards monopolistic competition.

b. As suggested by the article, the existing companies and brands in the FMCG market in India has some market power or price-determining ability as with the entry of new firms in both the soap and commercial detergent segment of the market, the existing firms and companies are compelled to reduce the prices of their products in order to securely maintain their respective market shares. Hence, competitive threats in the market essentially leads to reduction of the price of many of existing products in the market as the existing brands and companies respond to the entry of new firms in the market through price competition to maintain their existing profitability and respective market shares. Hence, increasing entry or inclusion of new companies and brands into the market eventually ensures that the product prices in the market stabilizes and are not overcharged. This also essentially implies that in the long-run any individual company or brand does not have any economic incentive to earn higher economic profit above the normal level and the profit level of the existing companies and brands eventually normalizes in the long-run and the market power of the respective companies and brands also declines at the same time. As the new companies enter the market, the existing firm would be compelled to reduce the price of their respective products and the product prices would eventually be equal to the long-run average cost of production incurred by the existing companies and brands. Therefore, the companies have reduced incentives to earn above the normal profit level. Thus, entry or inclusion of new companies in the market ensures that the profit level of the individual companies and brands existing in the market normalizes in the long-run with a more balanced, identical and equilibrium profit level of all the existing companies and brands.

c. The selling cost of any product or service basically represents the cost which is used by the manufacturers/producers and the suppliers to convince the buyers or consumers to prefer to buy the particular product or service over the products or services sold by other market competitors. In this context, despite the observation that the existing companies and brands do have some market power or price-determining ability to sell their respective products, the untramelled entry of the new companies in the market would eventually diminish their market power and the product prices would have a downward pressure. This indicates that with increasing market competition, the existing companies and brands would have lower economic incentive and ability to increase their selling costs to attract more consumers or buyers as their market power would be diminished. Moreover, with increasing product differentiation in the market as the companies and brands launch new and unique products with various characteristics and features and highly rigoruous competition along advertisements and marketing, it would not be prudent from an economic or commercial point of view for individual companies and brands to significantly increase their respective selling costs which could potentially lead to consumer withdrawal and a decline in sales revenue and overall profitability.