Question

Consider the pizza restaurants and explain the following issues. The pricing behavior of the firms in this industry: The main factor which determines the prices in this industry is the product specialization and the price differentiation. The specialization in the product allows the producer to charge different price from the consumer with comparison to the other restaurant. The products are homogeneous but with little differences allowing to charge different price for the same commodity. The industry is not the price taker which is also the reason for different prices prevailing. The lack of perfect knowledge about the product to the consumer is also a factor for these price differentiations. 5. Explain the effect of a horizontal integration of all the firms in the industry on the pricing behavior of the merger. 6. Given the merger in point 5, explain the changes in the concentration of the industry. 7. Given the merger in point 5, explain the relationship between the elasticity of the industry demand and that of the firm. 8. Given the merger in point 5, explain how entry into the industry is affected.

Answer 1

Competitors change pricing due to various reason. Pricing can less or more depending upon the product, market conditions, client preferences change, demand based etc.

When a firm tries to charge less it is due to

• Grab the opportunity like for eg seasonal demand for flights are more during school vacations. They plan to give more value buying so as to boost the sales and to make use of this limited opportunities.
• Boost demand during lean period, some airlines offer discount to meet their operational expenses. Once in a while they give discount during lean period to fill the capacity

When a firm tries to charge high

• Innovation if the firm is selling a product or services which are very unique, it claims high price due to attributes it carries. So customers pays premium to get services.
• Capitalize on demand, they charges high.

Brand is having a premium image in its target audience; they don’t resort to price war. The reason being the uniqueness and the premium service or value added service that the company offers.

The company can resort to price war for boosting sales, as it is very important to sustain. Sometimes the premium brand can offer value price, higher price for more added features etc.

Sometimes it can be damaging for the brand to resort to price wars as they are damaging their own image of a premium brand. In that case they can always offer loyalty rewards kind of discounts on certain value added service to their loyal clients. They can creatively use promotions like group discounts etc.

United airlines are an international airline company catering to high end clients. The pricing done in a way that it charges premium for the services like client friendly, luxury etc.

It is facing stiff competition from low cost airlines, as the most of them wants value buying as there are many players available. The airlines are resorting to price wars has largely affected the airlines. They started charging for the overhead bins to increase profits but those moves made clients unhappy. The global recession and economic slowdown across globe can be a threat to premium airline industry. The united airlines have lot of opportunities in south Asia especially in major Tourist destinations in Asia. Lot of opportunities to capture the target segment like big corporation.