Marketing Structure and Pricing Decisions

5312 WordsDec 3, 201122 Pages
MARKET STRUCTURE AND PRICING DECISIONS BY ONIKOYI O. OLUWATOBI Marketing A Presentation submitted to the department of business Administration and marketing Management and Social Sciences. In partial Fulfilment on ECONS 801 (MANAGERIAL ECONOMICS) Taught by Associate Prof. Didia P. O November, 2011 Introduction In order to maximize profits or shareholder wealth, managers must use the information that they have relating to demand and costs in order to determine strategy regarding price and output, and other variables. However, managers must also be aware of the type of market structure in which they operate, since this has important implications for strategy; this applies both to short-run decision making and to long-run…show more content…
Although there are several grades, all wheat of a given grade sells for the same price in a given market. Buyers are usually not told who produced the wheat, nor do they care. If properly graded, wheat from one supplier is as good from another. Product differentiation is an important characteristic because it indicates a firm’s ability to affect price. However, products considered less desirable will be purchased only if seller is willing to accept a lower price. * Conditions of Entry and Exit Ease of entry and exit are crucial determinants of the nature of a market in the long run. When it is extremely difficult for new firms to enter, existing firms will have much greater freedom in making pricing and output decisions than if they must be concerned about new entrants who have been attracted by the lure of high profits. Consider a drug manufacturer that holds a patent that prohibits other firms from making the drug. If there are no close substitutes for the product, that firm will essentially be free from competition now and for the duration of the patent. Thus its managers can make pricing decisions without worrying about losing market share to new entrants. However, if the drug can be easily copied, and if prices are substantially above costs, new firms may enter the market. Ease of exit also affects managerial behaviour. Suppose that certain firms in a market have been earning less than the normal rate of profit, if the resources used to produce the product

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