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Pricing strategy for business markets
Pricing strategy for business markets
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PRICING
To be able to understand how the four types of market affect pricing decisions we must first look at the factors considered when setting prices. As per discussion in class, competitors; consumer perception of price and values; market and demand all together contribute to the pricing decisions. According to the study of Economics these factors are present in the four types of market: Monopoly, Oligopoly, Perfect competition and Monopolistic competition.
In monopoly, where there is only one provider of a product or service, the company controls the pricing decision. Seeing that there is none, if not limited, existing competition in the market proves that the company is not dependent on the pricing decision of other electricity service suppliers. A common local example would be Meralco, although there are other electricity providers outside Mega Manila, Meralco is still considered the largest and the most income generating electricity supplier in the country. Being the largest assumes a big bulk of the population demanding and relying on the services it provides, there is not much choice left for the consumers but to patronize Meralco, in effect the charges that the company asserts (under the government’s approval) will always be assimilated by the consumers. The unavailability of other options gave them the position to take control of the pricing of charges.
In oligopoly the market is shared by a small number of producers or sellers. Since it is dominated by a small number of sellers, each one is mindful on the act of the other and decisions of each other firms influence one another. There is a concern on the reactions or responses of the other sellers in the markets thus the pricing decision is thought of carefully against the competitor’s pricing decisions, it now becomes dependent on the other participants in the market. The local examples are the prominent landline telecommunication service suppliers such as PLDT, Bayantel, Digitel and Globelines. Based from observations on ads and promotions every time one seller initiates a call charge reduction the other sellers automatically follows the trend. The whole idea in this kind of market is that firms are actually after price decrease, with the hope of gaining a bigger share of the market. Either pricing decision indicates a decrease or increase all actions will create a price war response with other sellers.
A perfect competition market describes a market setting wherein the buyers and sellers are so numerous that the market price of commodity is no longer in control of either the buyers or the sellers.
First, a perfectly competitive market provides low prices for consumer of the market. This exists as a pro for the consumers buying the product. In the example, it remains a pro for people purchasing the corn cheaply in Tap. When low prices exist in the market however, the burden is placed on the producers. This happens because the producers identify as price takers, and the price stays low due to competition. Low prices result in lower profits. On the island of Tap for example, low prices in a competitive market hurt the producers of corn. Meaning, farmers prefer the monopoly version of the market. The monopoly form results in farmers getting paid above the perfectly competitive market price. On the contrast, in a monopoly form prices remain higher for the consumers. The final pro of the monopoly form exists as the uniform packaging and quality. Since only one firm produces the specific product, they use the same quality and packaging throughout the process. This also be views as a con for the perfectly competitive side. This side uses many different forms of packaging and quality due to the various amounts of producing firms. Overall, many different pros and cons result when implementing various kinds of market
A market is a group of good and service for buyers and seller in economic industry (Mankiw, 2011). The buyers were included by group of demand for the product, and the sellers were included by group of supply of the product (Mankiw, 2011). A market is only for group of economic agents, which is firms and individuals, for who were interact with each other in buyer-seller relationship (Wilkinson, 2005). In general, market structure can beclassified into four major characteristics: monopoly, perfect competition, monopolistic competition and oligopoly.
Based on the graph above, we can see that when the price of East Tuna increases, the sales of East Tuna decreases. The correlation (Refer to correlation) can prove that the relationship between the price of East Tuna and the sales of East Tuna are negatively related and it is fairly strong (-0.6159). The price of Kings Tuna is negatively related to the sales but with a weak relationship (-0.0247). Furthermore, the sales of East Tuna and the price of Lescos Tuna has a positive but weak relationship (0.1852). This means that Lescos Tuna is a competitor for East Tuna because when the price of Lescos Tuna increases, the sales of East Tuna increases as well. A software
A perfect competitive firm is defined as: “a market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run.” The four characteristics of a perfectly competitive firm include the following: it must consist of many buyers and sellers, firms sell a particular commodity, buyers and sellers are fully informed about the price and availability of all resources and products, and firms and resources are freely mobile. These four characteristics contribute to the reason why a perfectly competitive firm is unable to become a “price-maker” (perfectly competitive firms are unable to make up their own prices) and must be a “price-taker”. As a result of being a “price-taker”,
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
Firms may be categorized in a variety of different market structures. Perfectly competitive, monopolistically competitive, oligopolistic,
In addition to these prerequisites, the perfect market required perfect consumer and supplier information, no rent seeking behaviour and no moral hazard existed. If these conditions were not met, market mechanisms would fail to produce the efficient allocation of resources.
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
Well the bottom line is that a monopoly is firm that sells almost all the goods or services in a select market. Therefore, without regulations, a company would be able to manipulate the price of their products, because of a lack of competition (Principle of Microeconomics, 2016). Furthermore, if a single company controls the entire market, then there are numerous barriers to entry that discourage competition from entering into it. To truly understand the hold a monopoly firm has on the market; compare the demand curves between a Perfect Competitor and Monopolist firm in Figure
Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product (or service) at its price.
As market prices are determined in free markets by the interaction of demand and supply, changes in market prices are due to changes in demand or supply, or both.
In a perfectly competitive market, the goods are perfect substitutes. There are a large number of buyers and sellers, and each seller has a relatively small market share. Perfect competition has no barriers to information regarding prices and goods, meaning there is no risk-taking behaviour – sellers and buyers are rational. There is also a lack of barriers for entry and exit.
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).
According to Miller, a monopolistic competition is, “a market situation in which a large number of firms produce similar but not identical products. Entry into the industry is relatively easy” (2012, p. 556). The most important characteristic of monopolistic competition includes features such as, having a significant number of sellers in a highly competitive market, differentiated products, sales promotion and advertising, and easy entry of new firms in the long run. Accordingly, Chamberlin defined monopolistic competition as, “a market structure in which a relatively large number of producers offers similar but differentiated products” (Miller, 2012, p.
Price is what a buyer must give up to obtain a product. It is often the most flexible of the four marketing mix element that the price is the quickest element to change. A marketer can raise or lower prices more frequently and easily than they can change other marketing mix