Misplaced Pages

#361638

39-612: The Forward Markets Commission ( FMC ) is the regulatory body for the commodity market and futures market in India . It is a division of the Securities and Exchange Board of India , Ministry of Finance , Government of India . As of July 2014, it regulated Rs 17 trillion worth of commodity trades in India. It is headquartered in Mumbai and this financial regulatory agency

78-399: A license to operate from the sector regulator. This license will set out the conditions by which the companies or organizations operating within the industry must abide. Regulatory regimes vary by country and industry. In the most light-touch forms of regulation, regulatory agencies are typically charged with overseeing a defined industry. Usually they will have two general tasks: In

117-593: A downward sloping demand, and the industry is often characterized by extensive non-price competition. The oligopoly considers price cuts to be a dangerous strategy. Businesses depend on each other. Under this market structure, the differentiation of products may or may not exist. The product they sell may or may not be differentiated and there are barriers to entry: natural, cost, market size or dissuasive strategies. In an oligopoly, barriers to market entry and exit are high. The major barriers are: A special type of Oligopoly, where two firms have exclusive power and control in

156-422: A market, such that the level of competition between sellers is below the level of competition in perfectly competitive market conditions. The competitive structure of a market can significantly impact the financial performance and conduct of the firms competing within it. There is a causal relationship between competitive structure, behaviour and performance paradigm. Market structure can be determined by measuring

195-438: A market. Both companies produce the same type of product and no other company produces the same or alternative product. The goods produced are circulated in only one market, and no other company intends to enter the market. The two companies have a lot of control over market prices. It is a particular case of oligopoly, so it can be said that it is an intermediate situation between monopoly and perfect competition economy. Hence, it

234-471: A measure of firm concentration within a market and is the sum of the squared market shares of all the firms in the market (Herfindahl Index = (S i ) , where S i = market share of firm i) . Large companies are given more weight in the index (unlike the N-concentration ratio). The value of the index ranges from 1/N to 1 (where N is the number of firms in the market). Thus, the more concentrated

273-553: A perfectly competitive market, subsidies are harmful, and improvements to terms-of-trade are the first point of call for import protections. Conversely, imperfect competition assumptions promote intervention in the international trade market. Assuming imperfect competition allows for economic modelling of policies to contain imperfectly competitive firms' market power, or for enhancing monopoly power in situations of national interest. Thus, assumptions of perfect competition or imperfect competition have implications for policy choices and

312-401: A small percentage of the total monopolistic market and hence, has limited control over the prevailing market price. Thus, each firms' demand curve (unlike perfect competition ) is downward sloping, rather than flat. The main difference between monopoly competition and perfect competition lies in the paradox of excess capacity and price exceeding marginal cost. In an oligopoly market structure,

351-460: A very vital role in this market. As price increases, quantity demanded decreases for the given product. The demand curve in perfectly competitive and imperfectly competitive market has been illustrated in the image on the left. Economists primarily use these assumptions of perfect competition for developing economic policy, including economic welfare and efficiency analysis. If ANY of the above conditions of perfect competition are dissatisfied,

390-466: Is a Monopsonist if it faces small levels, or no competition in ONE of its output markets. A natural monopoly occurs when it is cheaper for a single firm to provide all of the market's output. Governments often restrict monopolies through high taxes or anti-monopoly laws as high profits obtained by monopolies may harm the interests of consumers. However, restricting the profits of monopolists may also harm

429-405: Is not effective as no market exists in purely perfectly competitive conditions. The argument for assuming perfect competition in economic decision making prevails on the widespread use of its logic, and the present lack of substantial and consistent imperfectly competitive economic models. Utilising the assumptions of perfect competition, foreign trade policies advocate for minimal intervention. In

SECTION 10

#1732779995362

468-633: Is overseen by the Ministry of Finance . The Commission allows commodity trading in 22 exchanges in India, of which 6 are national. On 28 September 2015 the FMC was merged with the Securities and Exchange Board of India (SEBI) to make the regulation of commodity futures market strong. Established in 1953 under the provisions of the Forward Contracts (Regulation) Act, 1952, it consists of not less than two but not exceeding four members appointed by

507-437: Is the most basic form of oligopoly . In a monopoly market, there is only one supplier and many buyers; it is a firm with no competitors in its industry. If there is competition, it is mainly some marginal companies in the market, generally accounting for 30-40% of the market share. The decisions of marginal companies will not materially affect the profits of monopolists. The monopolist has market power, that is, it can influence

546-853: The United Kingdom ; and, in the case of economic regulation , the Office of Gas and Electricity Markets and the Telecom Regulatory Authority in India . Regulatory agencies may be a part of the executive branch of the government and have statutory authority to perform their functions with oversight from the legislative branch. Their actions are often open to legal review . However, some regulatory bodies are industry-led initiatives rather than statutory agencies, and are called 'voluntary organisations'. They may be not-for-profit organisations or limited companies. They derive their authority from members' commitments to abide by

585-445: The benefit of the public at large). The existence of independent regulatory agencies is justified by the complexity of certain regulatory and directorial tasks, and the drawbacks of political interference. Some independent regulatory agencies perform investigations or audits , and other may fine the relevant parties and order certain measures. In a number of cases, in order for a company or organization to enter an industry, it must obtain

624-460: The central government, out of them one being nominated by the central government to be the chairman of the commission. Since futures traded in India are traditionally on food commodities, the agency was originally overseen by Ministry of Consumer Affairs, Food and Public Distribution (India) . The commission appeared in the news in March 2012 for their ban on guar gum futures trading after it said

663-622: The commission are: www.sebi.gov.in Regulatory body These are customarily set up to strengthen safety and standards, and/or to protect consumers in markets where there is a lack of effective competition . Examples of regulatory agencies that enforce standards include the Food and Drug Administration in the United States and the Medicines and Healthcare products Regulatory Agency in

702-516: The degree of suppliers' market concentration, which in turn reveals the nature of market competition. The degree of market power refers to firms' ability to affect the price of a good and thus, raise the market price of the good or service above marginal cost (MC). The greater extent to which price is raised above marginal cost, the greater the market inefficiency.  Competition in markets ranges from perfect competition to pure monopoly , where monopolies are imperfectly competitive markets with

741-452: The efficacy of their effect, domestically and internationally. There are FOUR broad market structures that result in imperfect competition . The table below provides an overview of the characteristics of each of these market structures. A situation in which many firms with slightly different products compete. Moreover, firms compete by selling differentiated products that are highly substitutable, but are not perfect substitutes. Therefore,

780-787: The event that the regulated company is not in compliance with its license obligations or the law, the regulatory agency may be empowered to: In some instances, it is deemed in the public interest (by the legislative branch of government) for regulatory agencies to be given powers in addition to the above. This more interventionist form of regulation is common in the provision of public utilities , which are subject to economic regulation . In this case, regulatory agencies have powers to: The functions of regulatory agencies in prolong "collaborative governance" provide for generally non-adversarial regulation. Ex post actions taken by regulatory agencies can be more adversarial and involve sanctions, influencing rulemaking , and creating quasi-common law. However,

819-417: The greatest ability to raise price above marginal cost. The imperfect market faces a down-ward sloping demand curve in contrast to a perfectly elastic demand curve in the perfectly competitive market. This is because product differentiation and substitution occurs in the market. It is very easy for a consumer to change their seller which makes the consumer sensitive to price. The Law of demand also plays

SECTION 20

#1732779995362

858-580: The greatest revenue, by setting P > MC, at the cost of macroeconomic market efficiency. In the most extreme case of a monopoly, producers overcharge for their good or service, and underproduce. Thus, imperfectly competitive pricing strategies impact consumer preferences and purchases, business operation and revenue, and economic policy. Economists are in dispute over whether economic policy should be based on assumptions of perfect competition or imperfect competition. The imperfect theorists' perspective argues that policy based on assumptions of perfect competition

897-451: The interests of consumers, because companies may create unsatisfied products that are not available in new markets. These products will bring positive benefits to consumers and create huge economic value for enterprises. Tax and antitrust laws can discourage companies from innovating. The intensity of price competition is another good measure of how much control a firm within a market structure has over price. The Herfindahl Index provides

936-425: The level of market power under monopolistic competition is contingent on the degree of product differentiation. Monopolistic competition indicates that enterprises will participate in non-price competition. Monopolistic competition is defined to describe two main characteristics of a market: 1. There are many sellers in the market. Each vendor assumes that a slight change in the price of his product will not affect

975-468: The market is imperfectly competitive. Moreover; If ONE of the following conditions are satisfied within an economic market, the market is considered "imperfect": Imperfect conditions theorists believe that in the aggregate economy no market has ever, or will ever, exhibit the conditions of perfect competition. Imperfect competition is inherent in capitalist economies. Firms are incentivised by profit, and hence undertake competitive strategies which reap

1014-569: The market is supplied by a small number of firms (more than 2). Moreover, there are so few firms that the actions of one firm can influence the actions of the other firms. Due to the small number of sellers in the market, any adjustment of product quantity and pricing by an enterprise will affect its competitors and thus affect the supply and pricing of the whole market. Oligopolies generally rely on non-price weapons, such as advertising or changes in product characteristics. Several large companies hold large market shares in industrial production, each facing

1053-470: The market is, the larger the value of the Herfindahl Index will be. The table below provides an overview of price competition and intensity in the four main classes of market structure. Markets that face a downward sloping demand curve are said to have market power. This terms means that the markets have a certain power to decide their own price. This does not mean that the firm can decide

1092-448: The monopolist raises its price, it sells fewer units. This suggests that when prices rise, even monopolists can drive away customers and sell fewer products. The difference between monopoly and other models is that monopolists can price their products without considering the reactions of other firms' strategic decisions. Hence, a monopolist's profit maximising quantity is where marginal cost equals marginal revenue. At this point: A firm

1131-477: The monopolistic competition market may realize profit increase or loss in the short term, but will realize normal profit in the long run. If the price of the enterprise is high enough to offset the fixed cost above the marginal cost, it will attract the enterprise to enter the market to obtain more profits. Once the enterprise enters the market, it will occupy more market share by lowering the product price until economic profit reaches 0. Furthermore, each firm shares

1170-449: The overall market price. The belief that competitors will not change their prices just because a vendor in the market changes the price of a product. 2. The sellers in the market all offer non-homogenous products. Companies have some control over the price of their products. Different types of consumers will buy the goods they like according to their subjective judgment. There are two types of product differentiation: Enterprises entering

1209-533: The period of prohibition left India with a large number of small and isolated regional futures markets. The futures markets were dispersed and fragmented, with separate trading communities in different regions with little contact with one another. The exchanges had not yet embrace modern technology or modern business practices. Next to the officially approved exchanges, there were also many havala markets. Most of these unofficial commodity exchanges have operated for many decades. Some unofficial markets trade 20–30 times

Forward Markets Commission - Misplaced Pages Continue

1248-407: The price of the good. Moreover, a monopoly is the sole provider of a good or service and thus, faces no competition in the output market. Hence, there are significant barriers to market entry, such as, patents, market size, control of some raw material. Examples of monopolies include public utilities (water, electricity) and Australia Post . A monopolist faces a downward sloping demand curve. Thus, as

1287-495: The price quadrupled due to its use in fracking causing food inflation. In September 2013, the commission responsibility was moved to the Ministry of Finance to reflect that futures trading was becoming more and more a financial activity. India has a long history of trading commodities and considered the pioneer in some forms of derivatives trading . The first derivative market was set up in 1875 in Mumbai, where cotton futures

1326-500: The roles of regulatory agencies as "regulatory monitors" provide a vital function in administering law and ensuring compliance. Imperfect competition In economics, imperfect competition refers to a situation where the characteristics of an economic market do not fulfil all the necessary conditions of a perfectly competitive market . Imperfect competition causes market inefficiencies, resulting in market failure . Imperfect competition usually describes behaviour of suppliers in

1365-513: The standards applied by the regulator, for instance as the UK's Advertising Standards Authority says "The self-regulation system works because it is powered and driven by a sense of corporate social responsibility amongst the advertising industry." Regulatory agencies deal in the areas of administrative law , regulatory law , secondary legislation , and rulemaking (codifying and enforcing rules and regulations, and imposing supervision or oversight for

1404-468: The trading in derivatives on those food commodities. Post independence, in the 1950s, India continued to struggle with feeding its population and the government increasingly restricting trading in food commodities. Just at the time the FMC was established, the government felt that derivative markets increased speculation which led to increased costs and price instabilities. And in 1953 finally prohibited options and futures trading altogether. The industry

1443-684: The volume of the "official" futures exchanges. They offer not only futures, but also option contracts. Transaction costs are low, and they attract many speculators and the smaller hedgers. Absence of regulation and proper clearing arrangements, however, meant that these markets were mostly "regulated" by the reputation of the main players. The functions of the Forward Markets Commission are as follows: It allows futures trading in 23 fibers and manufacturers, 15 spices, 44 edible oils, 6 pulses, 4 energy products, single vegetable, 20 metal futures and 33 other futures. The three members of

1482-410: Was pushed underground and the prohibition meant that development and expansion came to a halt. In the 1970 as futures and options markets began to develop in the rest of the world, Indian derivatives markets were left behind. The apprehensions about the role of speculation, particularly in the conditions of scarcity, prompted the government to continue the prohibition well into the 1980s. The result of

1521-399: Was traded. This was followed by establishment of futures markets in edible oilseeds complex, raw jute and jute goods and bullion . This became an active industry with volumes reported to be large. However, in 1935 a law was passed allowing the government to in part restrict and directly control food production (Defence of India Act, 1935). This included the ability to restrict or ban

#361638