Pricing Strategies For Companies With Market Power

When consumers decide to purchase a product or service a car, a new refrigerator, or prescription drugs, the goal of the antitrust laws is to make sure their choices are not restricted unreasonably. Consumer choice is a powerful incentive for the sellers of any products to keep their prices low and their quality high. When the antitrust laws are vigorously enforced, businesses must respond to what consumers want. A business that ignores consumer wishes, by refusing either to keep prices competitive or to offer

Companies can choose many ways to set prices, skimming price strategy where a company sets a higher price than normal and a penetrating price where low initial price is set. “Pricing

This is where industry regulations come. The regulations discourages the monopolies and oligopolies from charging unfair prices for their products.

Price discrimination is where a firm changes different consumers different prices for the same service.

“Price-fixing schemes are often negotiated in secret and can be very difficult to uncover, but an agreement can be discovered from "circumstantial" evidence” (Sonnefeld). An example, if a group of direct competitors have regular contact with an unexplained identical contract terms or price behavior together with other factors; such as no reason to have a meeting for legitimate business, unlawful price fixing may be the reason. (McDavid)

Predatory pricing is an exclusionary act by which a firm, in order to create or maintain a monopoly power, lowers its prices below the profit maximizing level in order to push rival firms out of the market or prevent them from ever entering the market. In the long run, this results to be a detriment to consumers. Once the competition has left the market, the company can then raise prices to a supracompetitive level and recoup the losses suffered by predatory pricing. This results in higher prices for the consumer. With no alternative product available, the consumer is left with no choice but to pay the high price.

Colleges and Universities are involved in third-degree price discrimination defined as the difference of prices depending on the factors of gender, sex, geographical location and socioeconomic status.According to Boundless “Analysis of Price Discrimination” “Price discrimination exists within a market when the sales of identical goods or services are sold at different prices by the same provider. The goal of price discrimination is for the seller to make the most profit possible . Although the cost of producing the products is the same, the

Anna Zhou E Period Linsdell AP Economics: Predatory Pricing and American Airlines This semester in AP Economics, we learned about different pricing strategies, both legal and illegal, that companies use. One in particular, is predatory pricing. Predatory pricing is a strategy businesses use to target competitors and drive them out of the market, along with creating barriers to entry for new businesses. In America, engaging in predatory pricing can lead to antitrust claims against a business; however, it would have to be proven that the business is lowering prices with an ulterior motive of establishing a monopoly and driving competitors out of the market.

It does not focus its efforts on maximizing prices in the short term. However, it focuses on maintaining a perception of “pricing authority” among its customer and consistently providing the best possible prices

The two types of price discrimination I have chosen are lower movie ticket price during the afternoon on weekdays which happen because people tend to be at school or at work early in the day which makes it easier to go at night. The other price discrimination is cyber Monday sales which is the lowering of prices to keep up with other big stores near black Friday time which is because people tend to buy a lot of products during this time of the year so them lowering the prices to encourages the consumer to buy more product then they would of originally. Sense Newegg is one company out of many other tech companies it does not hold monopoly power so it cannot be the one who is the price maker in its market.

The discrimination is not present were buyers pay the same price for the commodities they buy. They can determine any price on the products they sell in future, even if the their costs in serving one buyer are much higher than the costs of serving the other.

Predatory pricing is a tool that is used to achieve market power. It is the practice of pricing below cost. This can foster market power in three simple ways, by eliminating rivals, by disciplining rivals who refuse to cooperate in keeping prices at monopoly levels, or by depressing the market value of rivals' assets so that a predator can purchase these assets at below market prices. Predatory pricing does not allow the market to work freely. It is a way of controlling the market.

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

If the business is a monopolist, then it has price-setting power. At the other extreme, if a firm

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.