Discuss the Main Factors Affecting Product Pricing in the Uk

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Discuss the main factors affecting product pricing in the UK

Two surveys on the price-setting behaviour of UK firms published by the Bank of England in 1996 and 2008 concluded that the price, the amount of money expected, required or given for a certain level of output, was most often set as a result of market conditions1. The same report however found that the second largest price differential was the objective of the specific firm surveyed1, and thus product pricing in the UK can be seen to be determined by the interaction between these objectives and the market structures that bind how firms operate. In the UK these dominant structures are monopolistic, oligopolistic and perfectly competitive, within which there are differing degrees
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While this does explain only a change in price, not its actual determination, it is effective in presenting why product pricing under oligopolistic market structure can be seen to be relatively stable at point P.

That is not to say that firms will not sell their output at different prices in order to increase market share. In the aforementioned oligopolistic market of tour operators, 3rd degree price discrimination can be practised by charging two sets of consumers with differing price elasticities of demand for the same product (price elasticity of demand for the time duration of a holiday becoming more inelastic at around 7 days) contrasting prices, and thus firms can extract consumer surplus from buyers and convert this into supernormal profit. This in turn can be used to defend market position through the cross subsidisation of other markets in which it operates, thereby artificially altering price and driving competitors out of the market. It must ensure however, that the cost of separating the two markets is not greater than the profit made, through the regulation of the resale of flight tickets, for example.

However, there is some debate as to whether Friedman’s doctrine of the pursuit of profit has any relevance to modern day corporations; a recent study by Shipley

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