Following the American Psychological Association’s Guidelines
Introduction
Pricing strategy is an important decision for the companies. Price means the agreement or the balance point between suppliers and demanders. In another word, price exhibits who is (are) stronger in the market; it is the most important indicator in the market. The price occurs depending on the strength of the side in the market. The companies would like to have more power, and having more power in the market happens through controlling the price. Thus, if a company or a group of companies can control the market price, then they get the monopoly or oligopoly power. Subsequently, controlling the price is essential, and the companies try to develop strategies to do it.
Creating Barriers for the Competitors
A company would like to have the power to influence the market price; therefore the company can set the best price for itself. However, influencing the market price is not that easy, because there exist many players in the market. As known, the full competition markets allow every player in the market to have all the information about everything in the market, and also we know that the full competition markets do not exist in the real world. However, the full information accessibility by everyone assumption implies an essential point: if one has more information than the other players in the market, then this company might have the power to lead the market, or in another word, if a company can hide some information from others, then it becomes powerful. This situation is called asymmetric information. The asymmetric information is a feature of the non-competitive markets like oligopoly, monopoly, duopoly, or monopolistic competition markets.
Monopoly, duopoly, oligopoly markets are similar. All the companies would like to have the market power by themselves. To be able to do this, they need to create barriers for the companies to prevent them entering the market. These barriers can be built by following different ways. Using government regulations and even pushing the governments to create these barriers for a company or a group of company; using financial powers such dropping the price down to kill the other companies; making large scale investments to gain from the scale economy that other companies cannot compete against this company; making implicit or explicit agreements between powerful companies in the market; or using mafia power to scare the competitors are some of those ways. Also there sometimes might exist a natural barrier in an industry where only one or a few companies can operate. For example, the railways, the water distribution, and other similar services require very high level of entry cost because of the infrastructure needed for the investment. Therefore, only a few big companies or one can be in this industry. Even sometimes no private company can afford and the state makes this investment.
Market Structures and Pricing Strategy
Pricing strategy is important in any kind of market structure, and especially in the non-competitive markets. Of course, it is important in the competitive markets; however, in the competitive markets, one of a group of companies cannot influence the market price, and mostly they take the given price occurring in the market. Thus the pricing strategy in the competitive markets is to take the market price. In the non-competitive markets, pricing is very important, and the best pricing is called “competitive pricing” which means any company which can offer their goods and services cheaper, then this company wins the game of selling products and services.
In the oligopoly market, pricing even might create a barrier for the other companies. As we know, the large scale companies have an advantage of scale economy, and that allows them to put the price down to kill the competitors. Thus placing the price down helps the oligopoly companies have oligopoly power in the market.
In the duopoly markets, a very similar story to the oligopoly markets is valid. Thus pricing can help a duopoly company to kill the other company. However, the fight between the duopoly companies becomes bloodier, but basically the same idea with the oligopoly markets is valid.
In the monopoly market, there exists only and only one seller in the market. Many people might feel that the monopolistic company may implement any price strategy; however, it is not a true idea, because as we know there always exist some other substitute products, and the people may not have to buy the monopoly market products. For instance, let us assume that the bread market is monopolistic, and the bread producer would like increase the prices. The buyers might react to this producer by buying pasta, cakes, and some other substitute products. Subsequently, even a monopolistic company has to create a price strategy which might make people to buy its products.
The monopolistic competition market is a bit different from the other non-competitive markets. This market structure is between full competition and monopoly. Normally, all the companies produce very similar substitutable products; thus we expect to have a competitive market; however, the companies try to differentiate their products to have temporary monopoly power. In another word, they try to convince the people that their products are different and better respectively. If the buyers accept this claim, then the company gains the monopoly power and the company can set the price. Otherwise, the company might have to follow the market price and it cannot implement a pricing strategy.
Conclusion
The market structure is determined by the buyers and the sellers in the market. If there exist some powerful companies among the sellers, and it is possible to observe that the market becomes non-competitive. Also it should be reminded that even though the market is non-competitive, the price setting cannot be determined by one or a group of companies. The buyers influence the market and if there is a close substitute products and services, or if the buyers have a power in the market, then the non-competitive market sellers might not be able to control the prices in the market. Consequently, a company or a group of company can control the market if they can influence other sellers and the buyers in the market, then they might have a chance to set the price in the market.
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