Running Head: THE IMPORTANCE OF PRICING STRAGETIES IN MARKET STRUCTURES
THE IMPORTANCE OF PRICING STRAGETIES IN MARKET STRUCTURES
Yvette Daniels
American Public University Systems
October 15, 2011
The importance of pricing strategies is different depending upon the type of market structure because each market structure has special components that affect the pricing schema and determination of output. Although the pricing strategies are different, it is highly important for a select market structure to choose the optimal pricing policy to insure that the firm is able to be successful and earn long-term profit. It also important to remember that pricing policies are subject to change considering that the business environment is ever
…show more content…
These market sturctures consist of a few firms or sellers and the entry barriers are moderate to high for protection from possible entrants (Samuelson & Marks, 2010). Oligopolies may have either homogeneous or differentiated products (Samuelson & Marks, 2010). Firms are interconnected with one another within an oligopoly and setting prices will effect the other firms within the industry. The demand curve of a oliopogy is kinked and elastic to price increases (Samuelson & Marks, 2010). A monopoly is the most common type of market structure in which firms aim to achieve ultimately within a industry. Monopoly the opposite of the perfect competition because a monoploy has a single firm that produces a superior product. Additionally, the a single firm ususally owns over 90 percent of the market (Samuelson & Marks, 2010). The products are not able to be substituted which allows a monopoly to set it prices or a price maker, however the price must not be unbearable to the consumers. The demand curve that monopoloies have is downward sloping because of the fact that monopoloies are able to control the price and quality (Samuelson & Marks, 2010). A monopoly has strict barrieres to entry and some barriers are placed by the government that allow a monopoly to remain a leader within its market structure and industry. Monopoloies are considered such due to the offering of one particular product/service mainly.
Primarily an oligopolistic market can be defined in terms of its structure this means several things such as the number of firms within a specific market this also links very well with a second aspect
Monopolies are defined as an industry dominated by one corporation, or business, like standard oil. They are a main driver of inequality, as profits concentrate more on wealth in the hands of the few.(Atlantic). A monopoly has total or nearly all control of that industry. They are considered an extreme result of the U.S. free market capitalism. The business own everything, from the goods to the supplies to the infrastructure. This company will become big enough to buy out other competitors or even crush their competitor by lowering their prices to get the other business to go out of business. They will then control the whole industry without any restarted, having the prices be what they want and the product to be in what condition they want
Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. For instance, stores that sell different kinds of apparel; eating places or markets that sells a variety of food. You can even think about sporting goods and alcohol. These are items that may be similar to a certain extent, but totally different in terms of perception because of the brands, and how they are marketed. When merchandise is unique, firms can have a mini-monopoly on a certain style or a certain brand. However, the companies that make these products have to compete with other brand names. The term monopolistic competition captures this mixture of mini-monopoly and tough competition.
1) An Oligopolistic market structure is a structure where very few large businesses sell a particular standard Good or differentiated Good, and to whose market entry proves difficult. This in turn, gives little control over product pricing because of mutual interdependence (with the exception of collusion among businesses) creating a non-price competition meaning they are the ‘price setters’. A good rule to help classify an
In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge high prices.[4] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[5]
Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market (Mankiw, 2014). Monopolies aim to find the profit-maximizing price for its product. If a firm is initially producing at a low level of output, marginal revenue exceeds marginal costs (Mankiw, 2014). Every time production increases by one unit, the marginal revenue increases again and is greater than marginal costs (Mankiw, 2014). Therefore
By definition a Monopoly is exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices (Monopoly 2012). Individuals are often time fearful of a company or industry becoming a monopoly because it would control too much of a market share, and do whatever wants; this includes raising prices, to using excess capital to branch into even more areas (Rise of monopolies 1996). The market structure of a monopoly is characterized by; a single seller; a unique product; and impossible entry into the market (Tucker 2011). A monopoly can be a difficult thing to accomplish being that a single seller faces an entire industry demand curve due to the fact it makes up the industry as a
Two different market structures are monopoly and oligopoly. Oligopoly is a type of monopoly but isn’t exactly the same. Monopoly is the structure that most businesses have which doesn’t have much competition. Oligopoly is a rather difficult business structure for new companies to join.
There are four types of market structures: Monopolistic Competition, Monopoly, Oligopoly, and Perfect Competition. Monopolistic Competition is also known as competitive market. In this market structure, there are a large number of firms that produce similar but somewhat differentiated products for the same target customers. The market share is also divided among large number of firms making it difficult for one firm to become the market leader. On the other hand, Monopoly is a type of market structure in which only one firm controls the whole industry. There are strict barriers to entry for new firms due to governmental restrictions or the monopolistic power of the firm itself. In Oligopoly, the whole industry is dominated by a few large scale firms that set prices, introduce innovative products, and use heavy campaigns to attract buyers. All other small scale firms follow the changing market patterns set by these oligopolistic firms. Lastly, perfect competition is a market structure in which there are a larger number of firms that produce similar as well as differentiated products for
Monopoly is a firm that is the sole seller of a product without close substitutes. A monopoly is caused by barriers to entry which means that there is only one seller in the market and no other firm can enter or compete with that sole seller. There are three main sources to barrier to entry, monopoly resources: a key resource required for production is owned by a single firm. Government regulation, which is the government gives a single firm the exclusive right to produce some good or service. Also the production process, which is a single firm can produce output at a lower cost than a large number of firms.
The first concept I am going to discuss is an oligopoly. There are several characteristics that make up an oligopoly. One characteristic is that there are many firms in the industry but only a few firms that make up the majority of the market share. In the United States soda market, three firms (Coca-Cola, Pepsi, and Dr. Pepper Snapple Group) make up almost ninety percent of the market (Schiller, 246). Another characteristic is that in an oligopoly, the oligopolists have substantial influence over price (though one oligopolist is usually the price leader). This market power is determined by the number of producers in the industry, the
What is a monopoly? According to Webster's dictionary, a monopoly is "the exclusive control of a commodity or service in a given market.” Such power in the hands of a few is harmful to the public and individuals because it minimizes, if not eliminates normal competition in a given market and creates undesirable price controls. This, in turn, undermines individual enterprise and causes markets to crumble. In this paper, we will present several aspects of monopolies, including unfair competition, price control, and horizontal, vertical, and conglomerate mergers.
Pricing strategy, a very critical component of the marketing mix. Price is usually an important factor affecting the success of the transaction, but also the most difficult to determine the marketing mix of factors. The goal of enterprise pricing is to promote sales and profit. This requires enterprises to consider both the cost of compensation, but also to consider the ability of consumers to accept the price, so that the pricing strategy has a bidirectional decision-making characteristics of buyers and sellers. In addition,
The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer.
Monopoly is the theory of market structure based on three assumptions: There is one seller, it sells a product for which no close substitutes exist, and there are extremely high barriers to entry. Local electricity companies provide an example of a monopolist.