Pricing and competition
Pricing
It is the process where businesses set prices for their products and services. Price is the amount that a consumer is willing to pay for a good or service. Price is also a measure of the value of a product or service. In setting prices of goods, it will depend on the amount they will acquire the assets for, the market place, the manufacturing cost, competition, the brand and the quality of their products and services (Lanny Ebenstein, (2015). Pricing is one of the Ps in the marketing mix, the others being product, place, and promotion (Lanny Ebenstein, (2015). Price is the only Ps that generates revenue. The rest Ps of marketing contributes to decreasing price elasticity, enabling price increase for better revenue and profits.
Competition
In economics, competition occurs when a market has an adequate number of buyers and sellers so that prices remain low. In a case with a large number of sellers, the customers have several options making companies compete to offer the best prices, value, and service or products (Hutt, William H. (March 1940). Competition is vital in the economy because consumers get the best prices, quality, and quantity of goods and services. Commercial firms ensure that they can get a share of a limited product or service by varying the marketing mix; price, promotion, and place (Hutt, William H. (March 1940). Competition causes firms to create new products and services, giving consumers a more excellent selection and better outcomes. With the game, it leads to lower prices due to the more superior choice made by the consumer.
Pricing competition
Price competition is whereby two similar products are judged by consumers because of their price. Sales are mostly done on the cheaper product. Competitive pricing can also consist of setting the price at the same level as the competitors (Guilding C., Drury C. & Tayles M. (2015). Placing the same price as the competitors, a new firm may avoid the trial and error of the price-setting process. For example, a firm needs to price a shaker. The firm’s competitor sells at $20, and the company decides that $20 is also the best price for the shaker. Setting the same price as competitors can be inefficient and even lead to low profits.
Setting prices the same as your competitors lead to an equilibrium. For example, if firm A has been selling microwaves for years and even has two distinct types: an entry-level microwave for $25 and a top-notch microwave for $50. It means that they experimented for years at different prices before reaching the equilibrium. If another firm wants to enter the market with also a top-notch microwave and an entry-level microwave, they will use the prices set by firm A assuming that firm A has aimed at maximizing their profits and reached the price equilibrium.
Competitive pricing works when the products sold by different firms are identical to the same customers. Competitive pricing can lead to a race at the bottom (Hanson W. (1992). For example, a firm can decide to use the aggressive pricing policy with a mix of competitive pricing and set the price 10% lower than the competitors. If another firm chooses to do the same thing, the market price will be decreasing, decreasing the profits. Competitive pricing can also lead to a race in the sky (Hanson W. (1992). If firm A decides to put a higher price for a product and consumers buy the product, another firm B may choose to increase the amount of their product also more top the firm B. Other firms may use this competitive pricing to set higher prices, which will lead to a race to the sky.
References
Guilding C., Drury C. & Tayles M. (2015), “An empirical investigation of the importance of cost-plus pricing.”
Hanson W. (1992), “The dynamics of Cost-plus Pricing,” Managerial and decision economics, vol. 13, 149-161
Hutt, William H. (March 1940). “The Concept of Consumers’ Sovereignty.” The Economic Journal. 50: 66–77. JSTOR 2225739.
Lanny Ebenstein, (2015). Chicagonomics: The Evolution of Chicago Free Market Economics Macmillan, pp. 13–17, 107
Name
Institution
Pricing and competition
Pricing
It is the process where businesses set prices for their products and services. Price is the amount that a consumer is willing to pay for a good or service. Price is also a measure of the value of a product or service. In setting prices of goods, it will depend on the amount they will acquire the assets for, the market place, the manufacturing cost, competition, the brand and the quality of their products and services (Lanny Ebenstein, (2015). Pricing is one of the Ps in the marketing mix, the others being product, place, and promotion (Lanny Ebenstein, (2015). Price is the only Ps that generates revenue. The rest Ps of marketing contributes to decreasing price elasticity, enabling price increase for better revenue and profits.
Competition
In economics, competition occurs when a market has an adequate number of buyers and sellers so that prices remain low. In a case with a large number of sellers, the customers have several options making companies compete to offer the best prices, value, and service or products (Hutt, William H. (March 1940). Competition is vital in the economy because consumers get the best prices, quality, and quantity of goods and services. Commercial firms ensure that they can get a share of a limited product or service by varying the marketing mix; price, promotion, and place (Hutt, William H. (March 1940). Competition causes firms to create new products and services, giving consumers a more excellent selection and better outcomes. With the game, it leads to lower prices due to the more superior choice made by the consumer.
Pricing competition
Price competition is whereby two similar products are judged by consumers because of their price. Sales are mostly done on the cheaper product. Competitive pricing can also consist of setting the price at the same level as the competitors (Guilding C., Drury C. & Tayles M. (2015). Placing the same price as the competitors, a new firm may avoid the trial and error of the price-setting process. For example, a firm needs to price a shaker. The firm’s competitor sells at $20, and the company decides that $20 is also the best price for the shaker. Setting the same price as competitors can be inefficient and even lead to low profits.
Setting prices the same as your competitors lead to an equilibrium. For example, if firm A has been selling microwaves for years and even has two distinct types: an entry-level microwave for $25 and a top-notch microwave for $50. It means that they experimented for years at different prices before reaching the equilibrium. If another firm wants to enter the market with also a top-notch microwave and an entry-level microwave, they will use the prices set by firm A assuming that firm A has aimed at maximizing their profits and reached the price equilibrium.
Competitive pricing works when the products sold by different firms are identical to the same customers. Competitive pricing can lead to a race at the bottom (Hanson W. (1992). For example, a firm can decide to use the aggressive pricing policy with a mix of competitive pricing and set the price 10% lower than the competitors. If another firm chooses to do the same thing, the market price will be decreasing, decreasing the profits. Competitive pricing can also lead to a race in the sky (Hanson W. (1992). If firm A decides to put a higher price for a product and consumers buy the product, another firm B may choose to increase the amount of their product also more top the firm B. Other firms may use this competitive pricing to set higher prices, which will lead to a race to the sky.
References
Guilding C., Drury C. & Tayles M. (2015), “An empirical investigation of the importance of cost-plus pricing.”
Hanson W. (1992), “The dynamics of Cost-plus Pricing,” Managerial and decision economics, vol. 13, 149-161
Hutt, William H. (March 1940). “The Concept of Consumers’ Sovereignty.” The Economic Journal. 50: 66–77. JSTOR 2225739.
Lanny Ebenstein, (2015). Chicagonomics: The Evolution of Chicago Free Market Economics Macmillan, pp. 13–17, 107