Historically, the market price premium has averaged approximately 11% per year. TRUE or FALSE?
A price premium is the percentage we get when we compare the average selling price to a benchmark of average market prices. The average market price is computed by getting the simple average of the closing prices of various firms during the year. This price premium is a reflection of market conditions as pertains to competition.
A high average price premium indicates that a product’s demand is higher than its supply; or that the product is of high quality. Management will study the average market price premium in order to set their own price premium. To get the average market price premium, the management will the brand market share as expressed in value by the brand market share as expressed in volume. For there to be a premium, the result should be more than 1. Historically, over a period of the last one hundred years, the market price premium has fallen between 3% and 12%. It is therefore true, that the premium has averaged approximately 11%. This indicates that the market price has remained relatively constant owing to normal supply and demand curves.