Outline
Introduction
Overview of Market Structure
Overview of Pricing
Relationship between Market Structure and Pricing Strategy
Market Structure Pricing Practices
Pricing Practices for Monopolistic, Monopolistic Competition, and Oligopolistic Markets
Pricing Practices for Perfect Competition Markets
Price Matching
Inducing Brand Loyalty
Randomized Pricing
References
Market Structure Pricing Practices
Market structure is one of the major factors that shape decisions made by business owners and managers. Generally, business owners and managers do not make decisions in a vacuum as they consider various factors including market structure. Market structure is an important aspect of decision-making in businesses as it shapes decisions on how much output to produce and pricing of products/services (Baye & Prince, 2017). The consideration of these factors is essential to promote business success and profitability. Given its impact on pricing or products/services, there is a nexus between market structure and pricing practices. In this regard, decisions on pricing are influenced by consideration of the market structure. This research paper discusses the nexus between market structure and pricing strategies as well as market structure pricing practices.
Overview of Market Structure
Baye & Prince (2017) define market structure as factors like the number of businesses competing in a market, size of these businesses, demand conditions, technological and cost factors, and the ease of entry and exit. A market structure is a term used to refer to a tool used in business decision-making in relation to the external business environment. In essence, the market structure provides business owners and managers with insights regarding the external business environment. These insights in turn shape the decisions and strategies adopted by business owners to ensure and promote the profitability and success of their businesses. Without an understanding of the market structure, business owners and managers will be unable to make appropriate decisions to promote the effective operations and profitability of their businesses. Therefore, market structure is a core characteristic for the operations of a business entity.
As a key factor in determining economic efficiency, market structure comprises different variables that shape managerial decisions. One of these variables is firm size, which implies the considerable variations in the size of businesses operating in a particular market. Each market has firms of different sizes ranging from small to large companies. A firms relative position in the industry is affected by various factors including changes in strategies adopted by rivals and changes in market conditions....
The second variable in market structure is industry concentration, which refers to distribution of firms within an industry. Industry concentration is an important aspect of managerial decisions as it determines the level of competition a business is likely to face in a particular industry. Markets vary in terms of industry concentration since some industries comprise many small firms while others are dominated by a few large firms (Baye & Prince, 2017). Technological and cost factors are the other variables of the structure of the market and relate to the technologies and costs of production of goods and services. The variations in technology used to produce goods and services contribute to differences in production techniques and measures across industries. These techniques in turn shape cost factors, which are also affected by the labor required in production processes.
Industries also vary in terms of demand and market conditions as well as the potential for entry and exit. Industries with low demand are characterized by the existence of only a few firms, which are adequate to sustain the market. On the contrary, industries with high demand are characterized by the presence of many firms to produce the demanded quantity of goods and services. Additionally, some industries...
Randomized Pricing
The final pricing practice employed by firms in this market structure is randomized pricing in which a company varies the cost of its products and services from hour to hour or day to day. When this strategy is employed, customers cannot identify firms that charge the lowest price in the market. Additionally, when utilized, randomized pricing lessens the ability of rival companies to destabilize its price. The effectiveness of this pricing strategy requires the use of advertising channels with a wider reach.
In conclusion, market structure is a term used to refer to market conditions that shape major business decisions. Some of these conditions include the number of businesses competing in a market, size of these businesses, demand conditions, technological and cost factors, and the ease of entry and exit. There is a strong link between market structure and pricing practices because market conditions influence product and/or service pricing. Market structure affects pricing practices by shaping the behaviors of buyers and sellers as well as the behaviors of producers. Given the difference in market structures, pricing practices differ as businesses seek to enhance their profits and revenues. Busineses set pricing objectives and…
References
Baye, M.R. & Prince, J.T. (2017). Managerial economics and business strategy (9th ed.). New York, NY: McGraw-Hill Education.
Farm, A. (2019, May 31). Pricing in practice in consumer markets. Journal of Keynesian Economics, 43(1), 61-75.
Indounas, K. (2018). Market structure and pricing objectives in the services sector. Journal of Services Marketing, 32(7), 792-804.
Kienzler, M. & Kowalkowski, C. (2017). Pricing strategy: A review of 22 years of marketing research. Journal of Business Research, 78, 101-110.
Labaj, M., Morvay, K., Silanic, P., Weiss, C. & Yontcheva, B. (2017, October 4). Market structure and competition in transition: Results from a spatial analysis. Applied Economics, 50(15), 1694-1715.
Toni, D.D., Milan, G.S., Saciloto, E.B. & Larentis, F. (2017). Pricing strategies and levels and their impact on corporate profitability. Revista de Administracao, 52, 120-133.
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