SOLE PROPRIETORSHIP

The sole Proprietorship is the simplest, oldest and natural form of business organization. It
is also called sole Trade Business. ‘Sole’ means one. ‘Sole trader’ implies that there is only
one trader who is the owner of the business.

It is a one-man form of organization wherein the trader assumes all the risk of ownership
carrying out the business with his own capital, skill and intelligence. He is the boss for
himself. He has total operational freedom. He is the owner, Manager and controller. He
has total freedom and flexibility. Full control lies with him. He can take his own decisions.
He can choose or drop a particular product or business based on its merits. He need not
discuss this with anybody. He is responsible for himself. This form of organization is
Popular all over the world. Restaurants, Supermarkets, pan shops, medical shops, hosiery
shops etc.

Features

 It is easy to start a business under this form and also easy to close.
 He introduces his own capital. Sometimes, he may borrow, if necessary
 He enjoys all the profits and in case of loss, he lone suffers.
 He has unlimited liability which implies that his liability extends to his personal
properties in case of loss.
 He has a high degree of flexibility to shift from one business to the other.
 Business secretes can be guarded well
 There is no continuity. The business comes to a close with the death, illness or
insanity of the sole trader. Unless, the legal heirs show interest to continue the
business, the business cannot be restored.
 He has total operational freedom. He is the owner, manager and controller.
 He can be directly in touch with the customers.
 He can take decisions very fast and implement them promptly.
 Rates of tax, for example, income tax and so on are comparatively very low.

Advantages

The following are the advantages of the sole trader from of business organization:

1. Easy to start and easy to close: Formation of a sole trader from of organization
is relatively easy even closing the business is easy.
2. Personal contact with customers directly: Based on the tastes and preferences
of the customers the stocks can be maintained.
3. Prompt decision-making: To improve the quality of services to the customers, he
can take any decision and implement the same promptly. He is the boss and he is
responsible for his business Decisions relating to growth or expansion can be made
promptly.
4. High degree of flexibility: Based on the profitability, the trader can decide to
continue or change the business, if need be.
5. Secrecy: Business secrets can well be maintained because there is only one trader.
6. Low rate of taxation: The rate of income tax for sole traders is relatively very
low.
7. Direct motivation: If there are profits, all the profits belong to the trader himself.
In other words. If he works more hard, he will get more profits. This is the direct
motivating factor. At the same time, if he does not take active interest, he may
stand to lose badly also.
8. Total Control: The ownership, management and control are in the hands of the
sole trader and hence it is easy to maintain the hold on business.
 9. Minimum interference from government: Except in matters relating to public
interest, government does not interfere in the business matters of the sole trader.
The sole trader is free to fix price for his products/services if he enjoys monopoly
market.
10. Transferability: The legal heirs of the sole trader may take the possession of the
business.

Disadvantages

The following are the disadvantages of sole trader form:

1. Unlimited liability: The liability of the sole trader is unlimited. It means that the
sole trader has to bring his personal property to clear off the loans of his business.
From the legal point of view, he is not different from his business.
2. Limited amounts of capital: The resources a sole trader can mobilize cannot be
very large and hence this naturally sets a limit for the scale of operations.
3. No division of labour: All the work related to different functions such as
marketing, production, finance, labour and so on has to be taken care of by the
sole trader himself. There is nobody else to take his burden. Family members and
relatives cannot show as much interest as the trader takes.
4. Uncertainty: There is no continuity in the duration of the business. On the death,
insanity of insolvency the business may be come to an end.
5. Inadequate for growth and expansion: This from is suitable for only small size,
one-man-show type of organizations. This may not really work out for growing and
expanding organizations.
6. Lack of specialization: The services of specialists such as accountants, market
researchers, consultants and so on, are not within the reach of most of the sole
traders.
7. More competition: Because it is easy to set up a small business, there is a high
degree of competition among the small businessmen and a few who are good in
taking care of customer requirements along can service.
8. Low bargaining power: The sole trader is the in the receiving end in terms of
loans or supply of raw materials. He may have to compromise many times
regarding the terms and conditions of purchase of materials or borrowing loans
from the finance houses or banks.

PARTNERSHIP

Partnership is an improved from of sole trader in certain respects. Where there are like-
minded persons with resources, they can come together to do the business and share the
profits/losses of the business in an agreed ratio. Persons who have entered into such an
agreement are individually called ‘partners’ and collectively called ‘firm’. The relationship
among partners is called a partnership.
Indian Partnership Act, 1932 defines partnership as the relationship between two or more
persons who agree to share the profits of the business carried on by all or any one of
them acting for all.

Features

1. Relationship: Partnership is a relationship among persons. It is relationship

resulting out of an agreement.
2. Two or more persons: There should be two or more number of persons.
3. There should be a business: Business should be conducted.
4. Agreement: Persons should agree to share the profits/losses of the business
5. Carried on by all or any one of them acting for all: The business can be
carried on by all or any one of the persons acting for all. This means that the
business can be carried on by one person who is the agent for all other persons.
Every partner is both an agent and a principal. Agent for other partners and
principal for himself. All the partners are agents and the ‘partnership’ is their
principal.

The following are the other features:

(a) Unlimited liability: The liability of the partners is unlimited. The partnership and
partners, in the eye of law, and not different but one and the same. Hence, the
partners have to bring their personal assets to clear the losses of the firm, if any.
(b) Number of partners: According to the Indian Partnership Act, the minimum
number of partners should be two and the maximum number if restricted, as given
below:
 10 partners is case of banking business
 20 in case of non-banking business
(c) Division of labour: Because there are more than two persons, the work can be
divided among the partners based on their aptitude.
(d) Personal contact with customers: The partners can continuously be in touch
with the customers to monitor their requirements.
(e) Flexibility: All the partners are likeminded persons and hence they can take any
decision relating to business.

Partnership Deed

The written agreement among the partners is called ‘the partnership deed’. It contains the
terms and conditions governing the working of partnership. The following are contents of
the partnership deed.

1. Names and addresses of the firm and partners

2. Nature of the business proposed
 3. Duration
4. Amount of capital of the partnership and the ratio for contribution by each of the
partners.
5. Their profit sharing ration (this is used for sharing losses also)
6. Rate of interest charged on capital contributed, loans taken from the partnership
and the amounts drawn, if any, by the partners from their respective capital
balances.
7. The amount of salary or commission payable to any partner
8. Procedure to value good will of the firm at the time of admission of a new partner,
retirement of death of a partner
9. Allocation of responsibilities of the partners in the firm
10. Procedure for dissolution of the firm
11. Name of the arbitrator to whom the disputes, if any, can be referred to for
settlement.
12. Special rights, obligations and liabilities of partners(s), if any.

KIND OF PARTNERS

The following are the different kinds of partners:

1. Active Partner: Active partner takes active part in the affairs of the partnership.
He is also called working partner.
2. Sleeping Partner: Sleeping partner contributes to capital but does not take part in
the affairs of the partnership.
3. Nominal Partner: Nominal partner is partner just for namesake. He neither
contributes to capital nor takes part in the affairs of business. Normally, the
nominal partners are those who have good business connections, and are well
places in the society.
4. Partner by Estoppels: Estoppels means behavior or conduct. Partner by estoppels
gives an impression to outsiders that he is the partner in the firm. In fact be neither
contributes to capital, nor takes any role in the affairs of the partnership.
5. Partner by holding out: If partners declare a particular person (having social
status) as partner and this person does not contradict even after he comes to know
such declaration, he is called a partner by holding out and he is liable for the claims
of third parties. However, the third parties should prove they entered into contract
with the firm in the belief that he is the partner of the firm. Such a person is called
partner by holding out.
6. Minor Partner: Minor has a special status in the partnership. A minor can be
admitted for the benefits of the firm. A minor is entitled to his share of profits of
the firm. The liability of a minor partner is limited to the extent of his contribution
of the capital of the firm.
Advantages

The following are the advantages of the partnership from:

1. Easy to form: Once there is a group of like-minded persons and good business
 proposal, it is easy to start and register a partnership.
2. Availability of larger amount of capital: More amount of capital can be raised
from more number of partners.
3. Division of labour: The different partners come with varied backgrounds and
skills. This facilities division of labour.
4. Flexibility: The partners are free to change their decisions, add or drop a
particular product or start a new business or close the present one and so on.
5. Personal contact with customers: There is scope to keep close monitoring with
customers requirements by keeping one of the partners in charge of sales and
marketing. Necessary changes can be initiated based on the merits of the proposals
from the customers.
6. Quick decisions and prompt action: If there is consensus among partners, it is
enough to implement any decision and initiate prompt action. Sometimes, it may
more time for the partners on strategic issues to reach consensus.
7. The positive impact of unlimited liability: Every partner is always alert about
his impending danger of unlimited liability. Hence he tries to do his best to bring
profits for the partnership firm by making good use of all his contacts.
 Disadvantages:

The following are the disadvantages of partnership:

1. Formation of partnership is difficult: Only like-minded persons can start a

partnership. It is sarcastically said,’ it is easy to find a life partner, but not a
business partner’.
2. Liability: The partners have joint and several liabilities beside unlimited liability.
Joint and several liability puts additional burden on the partners, which means that
even the personal properties of the partner or partners can be attached. Even when
all but one partner become insolvent, the solvent partner has to bear the entire
burden of business loss.
3. Lack of harmony or cohesiveness: It is likely that partners may not, most often
work as a group with cohesiveness. This result in mutual conflicts, an attitude of
suspicion and crisis of confidence. Lack of harmony results in delay in decisions and
paralyses the entire operations.
4. Limited growth: The resources when compared to sole trader, a partnership may
raise little more. But when compare to the other forms such as a company,
resources raised in this form of organization are limited. Added to this, there is a
restriction on the maximum number of partners.
5. Instability: The partnership form is known for its instability. The firm may be
dissolved on death, insolvency or insanity of any of the partners.
6. Lack of Public confidence: Public and even the financial institutions look at the
unregistered firm with a suspicious eye. Though registration of the firm under the
Indian Partnership Act is a solution of such problem, this cannot revive public
confidence into this form of organization overnight. The partnership can create
confidence in other only with their performance.

Company
Company IS ‘an association of many persons who contribute money or money’s worth to a
common stock and employ it for a common purpose.

Features

This definition brings out the following features of the company:

1. Artificial person: The Company has no form or shape. It is an artificial person

created by law. It is intangible, invisible and existing only, in the eyes of law.
2. Separate legal existence: it has an independence existence, it separate from its
members. It can acquire the assets. It can borrow for the company. It can sue
other if they are in default in payment of dues, breach of contract with it, if any.
Similarly, outsiders for any claim can sue it. A shareholder is not liable for the acts
of the company. Similarly, the shareholders cannot bind the company by their acts.
3. Voluntary association of persons: The Company is an association of voluntary
 association of persons who want to carry on business for profit. To carry on
business, they need capital. So they invest in the share capital of the company.
4. Limited Liability: The shareholders have limited liability i.e., liability limited to the
face value of the shares held by him. In other words, the liability of a shareholder is
restricted to the extent of his contribution to the share capital of the company. The
shareholder need not pay anything, even in times of loss for the company, other
than his contribution to the share capital.
5. Capital is divided into shares: The total capital is divided into a certain number
of units. Each unit is called a share. The price of each share is priced so low that
every investor would like to invest in the company. The companies promoted by
promoters of good standing (i.e., known for their reputation in terms of reliability
character and dynamism) are likely to attract huge resources.
6. Transferability of shares: In the company form of organization, the shares can
be transferred from one person to the other. A shareholder of a public company can
cell sell his holding of shares at his will. However, the shares of a private company
cannot be transferred. A private company restricts the transferability of the shares.
7. Common Seal: As the company is an artificial person created by law has no
physical form, it cannot sign its name on a paper; so, it has a common seal on
which its name is engraved. The common seal should affix every document or
contract; otherwise the company is not bound by such a document or contract.
8. Perpetual succession: ‘Members may comes and members may go, but the
company continues for ever and ever’ A. company has uninterrupted existence
because of the right given to the shareholders to transfer the shares.
 9. Ownership and Management separated: The shareholders are spread over the
length and breadth of the country, and sometimes, they are from different parts of
the world. To facilitate administration, the shareholders elect some among
themselves or the promoters of the company as directors to a Board, which looks
after the management of the business. The Board recruits the managers and
employees at different levels in the management. Thus the management is
separated from the owners.
10. Winding up: Winding up refers to the putting an end to the company. Because law
creates it, only law can put an end to it in special circumstances such as
representation from creditors of financial institutions, or shareholders against the
company that their interests are not safeguarded. The company is not affected by
the death or insolvency of any of its members.
11. The name of the company ends with ‘limited’ : it is necessary that the name of
the company ends with limited (Ltd.) to give an indication to the outsiders that they
are dealing with the company with limited liability and they should be careful about
the liability aspect of their transactions with the company.

PUBLIC SECTOR ENTERPRISES

Public Sector enterprises occupy an important position in the Indian economy. Today,
public enterprises provide the substance and heart of the economy. Its investment of over
Rs.10,000 crore is in heavy and basic industry, and infrastructure like power, transport
and communications. The concept of public enterprise in Indian dates back to the era of
pre-independence.

Genesis of Public Sector Enterprises

In consequence to declaration of its goal as socialistic pattern of society in 1954, the

Government of India realized that it is through progressive extension of public enterprises
only, the following aims of our five years plans can be fulfilled.

 Higher production
 Greater employment
 Economic equality, and
 Dispersal of economic power

Forms of public enterprises

Public enterprises can be classified into three forms:

(a) Departmental undertaking

(b) Public corporation
(c) Government company
These are explained below

Departmental

Undertaking

This is the earliest from of public enterprise. Under this form, the affairs of the public
enterprise are carried out under the overall control of one of the departments of the
government. The government department appoints a managing director (normally a civil
servant) for the departmental undertaking. He will be given the executive authority to
take necessary decisions. The departmental undertaking does not have a budget of its
 own. As and when it wants, it draws money from the government exchequer and when it
has surplus money, it deposits it in the government exchequer. However, it is subject to
budget, accounting and audit controls.

Examples for departmental undertakings are Railways, Department of Posts, All India
Radio, Doordarshan, Defense undertakings like DRDL, DLRL, ordinance factories, and
such.

Features

1. Under the control of a government department: The departmental undertaking

is not an independent organization. It has no separate existence. It is designed to
work under close control of a government department. It is subject to direct
ministerial control.
2. More financial freedom: The departmental undertaking can draw funds from
government account as per the needs and deposit back when convenient.
3. Like any other government department: The departmental undertaking is almost
similar to any other government department
4. Budget, accounting and audit controls : The departmental undertaking has to
follow guidelines (as applicable to the other government departments) underlying
the budget preparation, maintenance of accounts, and getting the accounts audited
internally and by external auditors.
5. More a government organization, less a business organization . The set up of a
departmental undertaking is more rigid, less flexible, slow in responding to market
needs.

STATUTORY CORPORATION

A Statutory corporation is defined as a ‘body corporate create by an Act of Parliament or

Legislature and notified by the name in the official gazette of the central or state
government. It is a corporate entity having perpetual succession, and common seal with
power to acquire, hold, dispose off property, sue and be sued by its name”.
Examples of a Statutory corporation are Life Insurance Corporation of India, Unit
Trust of India, Industrial Finance Corporation of India, Damodar Valley Corporation and
others.

Features

1. A body corporate: It has a separate legal existence. It is a separate company by

itself. If can raise resources, buy and sell properties, by name sue and be sued.
2. More freedom and day-to-day affairs: It is relatively free from any type of
political interference. It enjoys administrative autonomy.
3. Freedom regarding personnel: The employees of public corporation are not
government civil servants. The corporation has absolute freedom to formulate its
own personnel policies and procedures, and these are applicable to all the
employees including directors.
4. Perpetual succession: A statute in parliament or state legislature creates it. It
continues forever and till a statue is passed to wind it up.
5. Financial autonomy: Through the public corporation is fully owned government
organization, and the initial finance are provided by the Government, it enjoys
total financial autonomy, Its income and expenditure are not shown in the annual
budget of the government, it enjoys total financial autonomy. Its income and
expenditure are not shown in the annual budget of the government. However, for
its freedom it is restricted regarding capital expenditure beyond the laid down
limits, and raising the capital through capital market.
6. Commercial audit: Except in the case of banks and other financial institutions
where chartered accountants are auditors, in all corporations, the audit is
entrusted to the comptroller and auditor general of India.
7. Run on commercial principles: As far as the discharge of functions, the
corporation shall act as far as possible on sound business principles.

Government Company

Section 617 of the Indian Companies Act defines a government company as “any
company in which not less than 51 percent of the paid up share capital” is held by the
Central Government or by any State Government or Governments or partly by Central
Government and partly by one or more of the state Governments and includes and
company which is subsidiary of government company as thus defined”.

Features

The following are the features of a government company:

1. Like any other registered company: It is incorporated as a registered company
under the Indian companies Act. 1956. Like any other company, the government
company has separate legal existence. Common seal, perpetual succession,
limited liability, and so on. The provisions of the Indian Companies Act apply for
 all matters relating to formation, administration and winding up. However, the
government has a right to exempt the application of any provisions of the
government companies.
2. Shareholding: The majority of the share are held by the Government, Central or
State, partly by the Central and State Government(s), in the name of the
President of India, It is also common that the collaborators and allotted some
shares for providing the transfer of technology.
3. Directors are nominated: As the government is the owner of the entire or
majority of the share capital of the company, it has freedom to nominate the
directors to the Board. Government may consider the requirements of the
company in terms of necessary specialization and appoints the directors
accordingly.
4. Administrative autonomy and financial freedom: A government company
functions independently with full discretion and in the normal administration of
affairs of the undertaking.
5. Subject to ministerial control: Concerned minister may act as the immediate
boss. It is because it is the government that nominates the directors, the minister
issue directions for a company and he can call for information related to the
progress and affairs of the company any time.

MARKET

Market is a place where buyer and seller meet, goods and services are offered for the sale
and transfer of ownership occurs. Economists describe a market as a collection of buyers and
sellers who transact over a particular product or product class (the housing market, the clothing
market, the grain market etc.). For business purpose we define a market as people or
organizations with wants (needs) to satisfy, money to spend, and the willingness to spend it.

Market Structure
Market structure describes the competitive environment in the market for any good or
service. A market consists of all firms and individuals who are willing and able to buy or sell a
particular product. This includes firms and individuals currently engaged in buying and selling a
particular product, as well as potential entrants. These are the main areas in the market, they are

 Seller contribution
 Buyer contribution
 Product differentiation
 Conditions of entry into the market.(competition)

The market structure can be divided into two types.,

Perfect Competition

Perfect competition refers to a market structure where competition among the sellers and buyers
prevails in its most perfect form. In a perfectly competitive market, a single market price prevails
for the commodity, which is determined by the forces of total demand and total supply in the
market

Characteristics/Features of Perfect Competition

The following features characterize a perfectly competitive market:

1. A large number of buyers and sellers: The number of buyers and sellers is large and
the share of each one of them in the market is so small that none has any influence on the
market price.
2. Homogeneous product: The product of each seller is totally undifferentiated from those
of the others.
3. Free entry and exit: Any buyer and seller is free to enter or leave the market of the
commodity.
4. Perfect knowledge : All buyers and sellers have perfect knowledge about the market for
the commodity.
5. Indifference: No buyer has a preference to buy from a particular seller and no seller to
sell to a particular buyer.
6. Non-existence of transport costs : Perfectly competitive market also assumes the non-
existence of transport costs.
7. Perfect mobility of factors of production: Factors of production must be in a position to
move freely into or out of industry and from one firm to the other.
Under such a market no single buyer or seller plays a significant role in price determination.

Imperfect competition

A competition is said to be imperfect when it is not perfect. Based on the number of

buyers and sellers, the structure of market varies as outlined below: “poly” refers to seller and
“psony” refers to buyer. Imperfect competition has three types, they are,

1. Monopoly
2. Monopolistic competition
3. Oligopoly
Monopoly
The word monopoly is made up of two syllables, Mono and poly. Mono means single
while poly implies selling. Thus monopoly is a form of market organization in which there is
only one seller of the commodity. There are no close substitutes for the commodity sold by the
seller. Pure monopoly is a market situation in which a single firm sells a product for which there
is no good substitute.

Features of monopoly
The following are the features of monopoly.

1. Single person or a firm: A single person or a firm controls the total supply
of the commodity. There will be no competition for monopoly firm. The
monopolist firm is the only firm in the whole industry.
2. No close substitute: The goods sold by the monopolist shall not have
closely competition substitutes. Even if price of monopoly product increase
people will not go in far substitute. For example: If the price of electric bulb
increase slightly, consumer will not go in for kerosene lamp.
3. Large number of Buyers: Under monopoly, there may be a large number
of buyers in the market who compete among themselves.
4. Price Maker: Since the monopolist controls the whole supply of a
commodity, he is a price- maker, and then he can alter the price.
5. Supply and Price: The monopolist can fix either the supply or the price. He
cannot fix both. If he charges a very high price, he can sell a small amount. If
he wants to sell more, he has to charge a low price. He cannot sell as much
as he wishes for any price he pleases.
6. Downward Sloping Demand Curve: The demand curve (average revenue
curve) of monopolist slopes downward from left to right. It means that he can
sell more only by lowering price.

Monopolistic competition
When large number of sellers produce differentiated products , monopolistic competition is said
to exist. A product is said to be differentiated when its important features vary.

Characteristics of Monopolistic Competition

The important characteristics of monopolistic competition are:

1. Existence of Many firms: Industry consists of a large number of sellers, each one of
whom does not feel dependent upon others. Every firm acts independently without
bothering about the reactions of its rivals. The size is so large that an individual firm has
only a relatively small part in the total market, so that each firm has very limited control
over the price of the product.

2. Product Differentiation: Product differentiation means that products are different in

some ways, but not altogether so. These products are relatively close substitute for each
other but not perfect substitutes. Consumers have definite preferences for the particular
verities or brands of products offered for sale by various sellers. Advertisement, packing,
 trademarks, brand names etc. help differentiation of products even if they are physically
identical.

3. Large Number of Buyers: There are large number buyers in the market. But the buyers
have their own brand preferences. So the sellers are able to exercise a certain degree of
monopoly over them. Each seller has to plan various incentive schemes to retain the
customers who patronize his products.
4. Free Entry and Exist of Firms: As in the perfect competition, in the monopolistic
competition too, there is freedom of entry and exit. That is, there is no barrier as found
under monopoly.
5. Selling costs: Since the products are close substitute much effort is needed to retain the
existing consumers and to create new demand. So each firm has to spend a lot on selling
cost, which includes cost on advertising and other sale promotion activities.
6. Imperfect Knowledge: Imperfect knowledge about the product leads to monopolistic
competition. If the buyers are fully aware of the quality of the product they cannot be
influenced much by advertisement or other sales promotion techniques. But in the
business world we can see that thought the quality of certain products is the same,
effective advertisement and sales promotion techniques make certain brands
monopolistic.

Price – Output Determination under Pricing under Monopoly

Monopoly refers to a market situation where there is only one seller. He has complete
control over the supply of a commodity. He is therefore in a position to fix any price. Under
monopoly there is no distinction between a firm and an industry. This is because the entire
industry consists of a single firm.
 Being the sole producer, the monopolist has complete control over the supply of the commodity.
He has also the power to influence the market price. He can raise the price by reducing his output
and lower the price by increasing his output. Thus he is a price- maker. He can fix the price to his
maximum advantages. But he cannot fix both the supply and the price, simultaneously. He can
do one thing at a time. If the fixes the price, his output will be determined by the market demand
for his commodity. On the other hand, if he fixes the output to be sold, its market will determine
the price for the commodity. Thus his decision to fix either the price or the output is determined
by the market demand.

PRICING METHODS
Pricing is an exercise, under pricing will results in losses and over pricing will make the customers run away. To
determine pricing in a scientific manner. It is necessary to understand the pricing objectives,pricing
methods,procedures and policies.

1. COST- BASED PRICING METHODS :

Cost-plus pricing

Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the
product and adds on a percentage (profit) to that price to give the selling price. This method
although simple has two flaws; it takes no account of demand and there is no way of
determining if potential customers will purchase the product at the calculated price.
 This appears in two forms, Full cost pricing which takes into consideration both variable
and fixed costs and adds a % markup. The other is direct cost pricing which are variable costs
plus a % markup, the latter is only used in periods of high competition as this method usually
leads to a loss in the long run.

Marginal cost pricing

Selling price is fixed in such a way that it covers fully the variable or marginal cost and
contributes towards recovery of fixed costs fully or partly, depending upon the market situations.
This is also called Break-even pricing or target profit pricing.

2. COMPETITION – ORIENTED PRICING

Sealed bid pricing

Price quotes solicited by governmental and other public agencies to ensure objective
consideration of competitive bids. Interested vendors are formally notified in advance of the
request for a bid and must meet a bidding deadline as well as stringent bid format
requirements. Sealed bids are sometimes opened publicly in the presence of all bidders. The
lowest bid is awarded the order.

Going Rate Pricing:

Here the price charged by the firm is in tune with the price charged in the industry as a
whole. Eg. When one wans to buy or sell gold, the prevailing market rate at a given point of
time is taken as the basis to determine the price.normally the prevailing market rate at a given
point of time is taken as the basis to determine the price.

3. DEMAND ORIENTED PRICING

Demand oriented pricing rules imply establishment of prices in accordance with consumer
preference and perceptions and the intensity of demand. Thus if seller wishes to sell more he
must reduce the price of his product, and if he wants a good price for his product, he could sell
only a limited quantity of his good.

Perceived value pricing :

Perceived value pricing considers the buyer’s perception of the value of the product ad the
basis of pricing. Here the pricing rule is that the firm must develop procedures for measuring
the relative value of the product as perceived by consumers
Differential pricing:
Differential pricing is nothing but price discrimination. In involves selling a product or service for
different prices in different market segments. Price differentiation depends on geographical
location of the consumers, type of consumer, purchasing quantity, season, time of the service
etc. E.g. Telephone charges, APSRTC charges.

4. STRATEGY BASED PRICING

Market skimming:
In most skimming, goods are sold at higher prices, . Skimming is usually employed to reimburse
the cost of investment of the original research into the product: commonly used in electronic
markets when a new range, such as DVD players,smart phones are firstly dispatched into the
market at a high price. This strategy is often used to target "early adopters" of a product or
service.

Market Penetration:

This is exactly opposite to he market skimming method.here the price of the product is fixed so
low that the company can increase its market share, the company attins profits with increasing
volumes and increase in the market share.

Two-Part Pricing:

The firms with market power can enhane profits by the strategy of two part pricing. Under this
strategy , a firm charges a fixed fee for the right to purchase its goods, Plus a per unit charge for
each unit purchased. Entertainment houses such as country clubs, athletic clubs, golf courses and
health clubs usually adopt this strategy. They charge a fixed initiation fee plus a charge, per
month or per visit.

Block Pricing:

Block pricing is another way a firm with ,market power can enhance its profits.Six Lux soaps in
a single pack or five.by selling a certain no. of units of products as one package.

Commodity bundling:

Commodity Bundling refers to the practice of bundling two or more different products together
and selling them as a single bundle price.The package deals offered by the the tourit companies,
Airlines hold testimony to this practice.Computer firm offers offer PC’s ,assembling as per the
customer specifications and offer them at a bundled Price.

Peak Load Pricing:

This has particular applications in public goods such as public urban transportation, where day demand (peak
period) is usually much higher than night demand (off-peak period). By subtracting the marginal costs of
operation from the original demands we find the marginal benefits of capacity, which must then be vertically
aggregated and equated to the marginal cost of increasing capacity.
 Psychological Pricing

Practice of fixing price by using odd numbers to get advantage from the customers is known
as Psychological Pricing.

For instance, Prices of 999, 111, 99, 777 etc.,