Consumer Goods Classification

Consumer goods are products which are purchased for personal consumption. Consumer
goods are classified into three areas.. These are:

Convenience Goods

Convenience products are inexpensive frequent purchases, there is little effort needed to
purchase them. Examples may include fast food and confectionery products.
Convenience products are split into staples, such as milk, eggs and emergency products
which are purchased when the need arises e.g. Umbrellas.

Shopping goods

Shopping goods are usually high risk products where consumers like to shop around to
find the best features and price for that product.. Examples include buying fridges,
freezers or washing machines.

Specialty Goods

There are products that are purchased infrequently. The consumers will conduct extensive
research to make sure that their purchase decision is right, because specialty goods are
expensive and infrequent purchases. The organization will support the product with an
extensive warranty package. Examples include watches and diamonds. There are usually
little or no substitutes for these products.

The five subcategories of industrial goods are:

Installation: Installation are industrial goods that are directly used in production of end
consumer goods. Installation can be designed for specialized situations or standard use.
Installations such as conveyor systems, machine tools and robotics equipments are
examples of industrial goods for specialized use whereas installations such as commercial
ovens, CAT scan machines are examples of industrial goods for standard use.
Installations are capital items.

Accessory equipment: These are capital items but are less expensive and less durable
than installations. Though most of the accessory equipments are involved indirectly in the
production process some accessories such as hand tools , forklifts and desk calculators
are directly involved in production.

Raw materials: These are industrial goods purchased in raw form to be later processed
and sold as consumer goods. Some examples of raw materials are iron ore; crude oil,
diamonds, wheat and leather. Some raw materials may directly be converted to consumer
goods while others may be resold for use in other industry.

Fabricated Parts and Materials: This category of industrial good comprises of

fabricated parts that are directly placed into final product without any processing.
Fabricated materials however, do require processing before they are placed in the
product. Industries such as auto industry use fabricated parts heavily such as batteries,
sun roofs, windshields.

Industrial supplies: These types of industrial goods are frequently purchased expense
category items. Some examples of these industrial goods are computer paper, light bulbs,
lubrication oil and office supplies.

What is a Monopoly?

A monopoly is a market structure in which there is a single supplier of a product .

“Monopoly" is a term from economics that refers to a situation where only a single
company is providing an irreplaceable good or service.

How do Monopolies Occur?

• This was a side effect of being the inventor of a product for which there is high
demand but no preexisting supply. Other monopolies occur when consolidation
across industries results in a single supplier. This was the case with the company
Standard Oil, which had to be broken up by the government in 1911.

Description of a Monopoly

• One firm that produces a good that is desired by customers

• The firm in question is the only place where the good or service can be found,
they have the ability to charge whatever they want, to the damage of market
competition that is the foundation of a healthy economy.

Advantages of a Monopoly

• Research and Development. Supernormal Profit can be used to fund high cost
capital investment spending. Successful research can be used for improved
products and lower costs in the long term.
• Economies of scale. Increased output will lead to a decrease in average costs of
production. These can be passed on to consumers in the form of lower prices.

Disadvantages of a Monopoly

• Price and Lower Output than under Perfect Competition. This leads to a decline in
consumer surplus and a deadweight welfare loss
• A monopoly is productively inefficient because it is not the lowest point on the
Average Cost curve
Disadvantages of a Monopoly
(Continued)

• A Monopolist makes Supernormal Profit leading to an unequal distribution of

income.

• A monopoly may use its market power and pay lower prices to its suppliers.

Graphing a Monopoly

Example of a Monopoly

• A recent example of a monopoly would be that of the pharmaceutical giant Pfizer

over the drug Viagra®, which at the time of its release had no substitutes or
competitors.
• Microsoft; settled anti-trust litigation in the U.S. in 2001; fined by the European
Commission in 2004, which was upheld for the most part by the Court of First
Instance of the European Communities in 2007. The fine was 1.35 Billion USD in
2008 for incompliance with the 2004 rule

Monopolistic Competition

Characteristics:

• A large number of firms- it is like perfect competition

• Entry easy – few barriers to entry and exit, so it is unlike monopoly
• Differentiated products– they are therefore closed, but not perfect,
substitutes so, they have market power(it means each firm has a unique
product)

Definition of Oligopsony

• An oligopsony is a market form in which the number of buyers

is small while the number of sellers in theory could be large.
• This typically happens in market for inputs where a small
number of firms are competing to obtain factors of production.
• It contrasts with an oligopoly, where there are many buyers but
just a few sellers.
• An oligopsony is a form of imperfect competition.
Cocoa: Example of Oligopsony

Three Buyers of Cocoa Bean

• Three firms buy the vast majority of world cocoa bean

production, mostly from small farmers in third-world countries.

Tobacco in US: Example of Oligopsony

Three Major Buyers of Tobacco in US

• Three companies (Altria, Brown & Williamson, and Lorillard

Tobacco Company) buy almost 90% of all tobacco grown in the
US.

Characteristics of Oligopsony

• The buyers have a major advantage over the sellers.

• They can play off one supplier against another, thus
lowering their costs.
• They can also dictate exact specifications to suppliers, for
delivery schedules, quality, and (in the case of agricultural
products) crop varieties.
• They also pass off much of the risks of overproduction,
natural losses, and variations in cyclical demand to the
suppliers.

Oligopsony

n situations where an oligopsony exists, a number of things may result. The first is that
there is likely some discouragement for more producers or sellers of the same product to
get into the business, especially if the buyers are seen as taking advantage of the
situation. Second, it may help keep prices down for consumers because these buyers
purchase in bulk and have more control of the purchase conditions.

Unlike an oligopoly, there may also be the potential for new buyers from time to time. In
fact, if the conditions become favorable to the buyers, new companies may be created to
take advantage of those conditions. Therefore, an oligopsony may not last very long, even
after it is created, if the conditions are ripe for exploitation. In such situations, the
oligopsony may have the potential to foster even greater competition among buyers as
others get into the marketplace.
Product life Cycle
Stage Characteristics
1. Market introduction stage

1. costs are high

2. slow sales volumes to start
3. little or no competition
4. demand has to be created
5. customers have to be prompted to try the product
6. makes no money at this stage

2. Growth stage

1. costs reduced due to economies of scale

2. sales volume increases significantly
3. profitability begins to rise
4. public awareness increases
5. competition begins to increase with a few new players in establishing market
6. increased competition leads to price decreases

3. Maturity stage

1. costs are lowered as a result of production volumes increasing and experience

curve effects
2. sales volume peaks and market saturation is reached
3. increase in competitors entering the market
4. prices tend to drop due to the proliferation of competing products
5. brand differentiation and feature diversification is emphasized to maintain or
increase market share
6. Industrial profits go down

4. Saturation and decline stage

1. costs become counter-optimal

2. sales volume decline or stabilize
3. prices, profitability diminish
4. profit becomes more a challenge of production/distribution efficiency than
increased sales