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EXPLAIN ALL PRICNG STRATEGIS FOR FIRMS WITH MARKET POWER TYPES WITH EXAMPLS •Strategies that yield even...

EXPLAIN ALL PRICNG STRATEGIS FOR FIRMS WITH MARKET POWER TYPES WITH EXAMPLS

•Strategies that yield even greater profits
-basic rule of profit maximization(monopoly and monopolistic competition and Cournot oligopoly)

•Exacting surplus from consumers:

–Price discrimination 3 types

–Two-part pricing

–Block pricing

–Commodity bundling

•Pricing strategies for special cost and demand structures

–Peak-load pricing

–Cross-Subsidies

-Transfer Pricing

• Pricing strategies in markets with intense price competition
-Price Matching

-Inducing Brand Loyalty

-Randomized Pricing

Solutions

Expert Solution

•Strategies that yield even greater profits:

- Basic rule of profit maximization:
Monopoly - In a monopoly, there is just one sole producer of a commodity. And, hence there is absolute product differentiation and the monopolists sets the price and demand of the commodity in order to maximize its profits. The basic rule of profit maximization is that, the monopolist will try to keeps its marginal revenue equal to its marginal cost. And the firm can decrease its quantity supplied so that it can increase its price and thus earn more profit. For instance, there is just one electricity board in the city, therefore it stands as a monopoly being the sole producer of electricity. It can restrict its quantity supplied so that, the firm can earn more profit by increasing the price of the electricity supply. And, since there is no other comeptition, he can easily execute this.
Monopolistic competition- It is a market situation when there are atleast two producers of a differentiated good. Similar to monopoly, it will also keep its marginal revenue equal to its marginal cost. For instance, if the MC exceeds the MR, more unit cost will be required, so the firm will reduce its production in order to achieve the situation where MC = MR.
Oligopoly- It is a type of market structure where there are small number of producers of a good, selling somewhat differentiated goods. It will also have a profit maximization rule same as Monopoly and monopolistic competition, where its marginal revenue will be equivalent to its marginal cost.

•Exacting surplus from consumers:

- Price discrimination -
Price discrimination takes place when a firm charges different prices for same commodities.
There are three degrees of price discrimination,
First, it occurs when the firm charges different prices for every unit consumed. For example, in airways, prices are alloted to the customers on the basis of seats they have selected, if the seats have more leg room, they will charge more. This tells the firms what the customers exactly demand for and thus charge them accordingly.
Second, It occurs when firms charges different prices for different quantities of the commodity. For example, hospitals and school would require more quantity of electricity, therefore the electricity producing firms would charge them less for per unit of electricity consumption while charging comparatively more to households or industries.
Third, it occurs when prices are charged differently for different consumer groups. For example, in airways, business, first and economy classes are charged differently on the basis of their choice of selection.

-Two-part pricing
It is a form of pricing where consumers are charged twice for some commodity. For example, a consumer having to pay for the entry of an amusement park and also charged separetely for the rides.

- Block pricing
It is a pricing strategy where identical commodities are packed together for sale and consumers are forced to buy all or none. For example, three markers are sold for $8, whereas, four markers are sold for $10.


- Commodity bundling
In this pricing strtegy, firms would sell a bundle of commodities for lesser price than would have for each of the commodity separetely. For example, a pack of 10 pens for $10 would sound more economical than buying an individual pen for $2 each.

•Pricing strategies for special cost and demand structures

-Peak-load pricing
It is a pricing strategy, where high prices are charged for commodities when their demands are at a peak. For example, during summer months, the demand for air conditioners may peak, as a result, the prices of AC will also increase substantially.

-Cross-Subsidies
It is a type of pricing where one group of consumers are charged higher to compensate for the lower prices charged to another group. For exapmle, the electricity boards charging more to the industries as compared to the households.

-Transfer Pricing
It involves comissioning of costs within an enterprise. For example, if Minute maid, a subsidiary of coca cola company sells its products to coca cola, the cost incurred by the later would be the transfer price.

• Pricing strategies in markets with intense price competition

-Price Matching
It is a strategy where the prices of commodities of competing firms are matched. For example, a couple of local stores fixing their prices at a same level for certain commodities.

-Inducing Brand Loyalty
A brand loyalty is induced when a consumer chooses a particular product (brand) despite having other different choices. A brand loyalty can be induced through different ways- For instance, by engaging with the customers, constantly promoting the brand, make efforts to mold according to the tastes of the consumers in different geographical and demographical regions. For instance, coca cola has maintained a good brand loyalty despite many other competitors in the market sphere.

-Randomized Pricing
It is a strategy where the firms hide their actual price from the market by changing its prices at regular interval. For instance, due to incomplete information about the prices in the market, a consumer may buy a commodity now than later when the prices of the commodity might drop.


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