Pricing Schemes Of The Price Of Consumer Surplus Essay

Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more

The alternative to differential pricing would be uniform pricing, wherein the wherein the seller sets one price, adjusted for transport, distribution and other costs, for all consumers and markets. Under such pricing, the seller maximizes his profits against global demand or

Cartel - firms ,especially dominant players, gather together to set up a price according to the profit maximisation in the whole market. In this case, firms act like a monopoly. The price of products of each firms is fixed, thus reduction of price competition will be achieved. Instead of pricing strategy, firms will compete each other over non-price competition, for example, advertising. Like monopoly, customers’ interest might be sacrificed because price is constructed according to the market’s profit maximisation point, whole industry can gain abnormal profit, which means customers pay more than they actually need to. According to the figure 1, price of products under cartel is set up at P because of profit maximisation E (MC=MR), and abnormal profit is PP2FG. However, cartel is illegal in many countries, including UK.

In all three degrees of price discrimination firms are able to make more profit and eliminate any excess capacity they may have. Firms are able to do this by charging higher prices to those consumers with a more price inelastic demand for their product. The firm is reducing the welfare of these consumers by changing them at the maximum price they are willing to

As a consumer, we all get frustrated when we think a listed price is “too high” whether it is a necessity, and we have to buy it, or we just really want it. Some of the largest complaints by consumers today are directed towards the cost of goods. Marketing research has shown us that the costs of some items are being intentionally raised based on aspects of the individual who is making the purchase. The manipulation of prices can be broken down into three main issues: price fixing, price gouging, and price discrimination. Are there any positive or beneficial reasons to do this? Yes and no, the following paragraphs provide information about each practice individually.

Anyone who shops will encounter price discriminations whether realizing it or not because many department stores and food chains offer discounts to seniors, such as Marshalls and McDonalds. However, the discounts are not automatic; the discounts have to be asked for. Therefore, two people of the same age could purchase the same product, one after the other, and one could receive a discount and the other would not. Price discrimination can be described as identical goods or services being sold at different prices from one single provider (Sexton, 2013). In addition, three categories are provided in order to meet the qualifications of price discrimination, such as operating as a monopoly, providing that the same product or service is not sold by someone else. The organization must operate under the elasticities of demand, and the product or service must have stipulations in order to prevent resale.

Research suggests that price discrimination is a tool used during the holiday season. Price discrimination is a pricing strategy where identical or largely similar goods or services are sold at different prices by

The first term we will use is price discrimination. Price discrimination is selling the same product at different prices

In day to day activities, price discrimination can be witnessed at a variety of locations. For instance, McDonalds offers a discount for senior coffee, if it is requested. Price discrimination can be described as identical goods or services being sold at different prices from one single provider (Sexton). In addition, in order for a good or service to qualify for price discrimination, three characteristics are provided. First, a business must operate as a monopoly, providing that the same good or service is not sold by someone else. Secondly, it is necessary for the organization to operate under the elasticities of demand, and thirdly, the organization must have provisions that avoid the possibility of the good or service

The case study name Target is Trying to Overcome the Problem of “Showrooming” indicates that Target vendors have little choice but to “play ball” and create special products to shield them from price comparisons (Kinicki & Williams, 2013). This demand from Target could have much more ethical ramifications and possible fallout from the vendors. Target’s use of the Individual Approach may not be the solution for the long run.

The thought process behind the practice of first degree price discrimination is that the firm has enough accurate information about the consumer, and that products can be sold each time for the maximum amount that the consumer is willing to pay. The two more common examples of first-degree price discrimination is called "price skimming" and "all-or-none offers". Skimming refers to the demand function, as firms take the top of the demand of a given good to maximize profits on the sale. This, of course, requires that the firm know the actual demand for the good that it produces. The firm must divide its customers into distinct, independent groups based upon their respective demands for the good. The firm wants to first sell to the group who will pay the highest price for the new product. It then reduces the cost slightly and sells to another group with only a slightly less demand for the good. This process is copied on numerous occasions until the marginal revenue drops to equal marginal cost. While this example may seem similar to other examples of price discrimination, you should remember that the most significant difference here is that there are a virtually limitless number of possible prices that, if charges

In second degree price discrimination, price varies in according to quantity demanded. Within some markets, each consumer purchases many units of the good over any given period, and the consumer 's demand declines with the number of units purchased. In this situation, a firm can discriminate according to the number consumed. This is

Price discrimination is common term used throughout the economics realm. In a perfect economic world, one price would fit all, however, we are not nor will we ever be in a perfect economical balance. Price discrimination takes on many different titles but can be defined by one simple statement of selling the same product to separate individuals for a different price (Elegido 633). Many consumers may identify this as being an unlawful act of discrimination, however, in the economical sense it is a lawful way of increasing its economical outcome. By utilizing price discrimination, firms are able to identify groups of individuals who are willing to pay more for a product and be able to charge less for other groups to attract a more profitable outcome while also increasing its client base (Edwards 298). Often, firms shy away from this type of tactic due to the negative perceptions it may give them, yet find other ways within the market to offer discounts under a different title only to camouflage the discrimination with a fancier term (Elegido 634). Whether a firm chooses to utilize price discrimination or not or whether one feels it is a legal way to charge more for a product, it has been proven to be a useful tool in both maximizing profits and attracting a client base both legally and ethically.

For price discrimination to exist we need to sell the same products or services to different consumers which would not be possible without fulfilling specific conditions. This is mainly due to the fact that individuals are ration and therefore won’t be willing to spend more on a product than another consumer. For price discrimination to take place three important conditions need to be considered these include; incomplete competition, price flexibility, and arbitrage (simultaneous purchase and sale of an asset to profit from a difference in the price). For a company to operate within a market and be successful with price discrimination, the company must do this through a certain degree of market power. Therefore, the market demand curve should be at a negative slope this therefore creates market power to create price discrimination. Market power is a necessary

This chapter sets out the rationale for price discrimination and discusses the two major forms of price discrimination. It then considers the welfare effects and antitrust implications of price discrimination.