Pricing Theories

This presentation includes notes collected from various sources from internet during my study journey with regard to the topic Pricing Theory

1. Pricing Theories

2. The theory of price is an economic theory that contends that the price for any specific good/service is based on the relationship between the forces of supply and demand . The theory of price says that the point at which the benefit gained from those who demand the entity meets the seller's marginal costs is the most optimal market price for the good/service . A perfectly competitive market must meet the following requirements: – The number of firms is large. – There are no barriers to entry. – The firms' products are identical. – There is complete information. – Firms are profit maximizers. MONOPOLY Monopoly is that situation of market in which there is a single seller of a product, for example, there is only one firm dealing in the sale of cooking gas in a particular town. Hence , monopoly is a market situation in which there is only one producer of a commodity with no close substitutes .

3. MONOPOLISTIC COMPETITION An economic view of the wide world between Perfect Competition and Pure Monopoly.

4. Maximum current profit, market skimming, product quality leadership and market share are considered as techniques of select pricing objective Pricing strategy in which prices are set lower to actual price to trigger short term sales is classified as : promotional pricing The horizontal demand curve parallel to x-axis implies that the elasticity of demand is: Infinite Income elasticity of demand is defined as the responsiveness of : Quantity demanded to a change in income. In Maximum current profit company may not focus on long-run performance by ignoring the impact of other marketing mix variables . Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, the firm lowers the price to attract another, more price-sensitive segment of the population. The skimming strategy gets its name from "skimming" successive layers of cream, or customer segments, as prices are lowered over time.

5. The "experience curve" refers to Cost per unit as a function of accumulated production A  fad , trend or craze is any form of collective behavior that develops within a culture, a generation or social group in which a group of people enthusiastically follow an impulse for a finite period.Fads are objects or behaviors that achieve short-lived popularity but fade away.Fads are often seen as sudden, quick spreading, and short-lived .   Fads include diets, clothing, hairstyles, toys, and more.  On an international scale, the price corridor recognizes the pricing differences between countries. The corridor has to consider the market sizes and price elasticities of the various countries. Thus, minimum and maximum prices are set. If done correctly, this method can improve pricing from 15% to 25%. Cost and freight is a legal term in international trade. In a contract specifying that a sale is CFR, the  seller  is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier. Under CFR, the seller does not have to procure marine insurance against the risk of loss or damage to the cargo during transit.

6. Gray Market - an unofficial market in goods that have not been obtained from an official supplier . Black Market - an illegal traffic or trade in officially controlled or scarce commodities.