Pricing Strategies Research Paper

Open, View, and/or
Download this Document

Total Length: 3056 words ( 10 double-spaced pages)

Total Sources: 8

Page 1 of 10

market structures and the pricing strategies which are specifically related to each of them. The introductory section of the paper gives an overview of the four major types of market structures and explains the main features which draw distinguishing lines between them. These major types of market structures are perfect competition, monopolistic competition, monopoly, and oligopoly. The second section discusses the pricing strategies which are used by competitors in each of these market structures in order to compete with the other competitors or operate in a profitable and competitive fashion. A case study has also been included which gives a real life example of the market structure and pricing strategies of a specific company. The paper concludes by giving summary and key findings from the whole discussion.

Introduction to Market Structures

Market structure refers to the number of competitors operating in a particular industry and the level or intensity of competition among them. Market structure is more of an economic concept than a marketing concept as it directly deals with the pricing strategies which companies operating in the same industry formulate to compete with each other, the major costs that influence these pricing strategies, the number of buyers and sellers that play an important role in making the competition more intensive, the patterns of entry and exit of competitors, and the availability of substitute products (Boyes & Melvin, 2012). Modern economists define market structure as a set of characteristics that collectively designs the competitive environment within an industry. Market structure not only takes into account the local businesses that are operating in an industry, but also the international corporations that are either trying to penetrate in its markets or have established their presence and have become an equal participant of the whole industry (Gitman & McDaniel, 2009).

Although the level of competition is mainly characterized by the businesses which have the greatest market share in an industry, but the significance of a large number of small competitors cannot be ignored when the market structure of that industry is discussed. Other main features of market structures include barriers to entry for new businesses, economic efficiency which makes the competition easier or stiffer for the participants, profit maximization strategies, the impacts of competition in the short run and the long run, and the use of product differentiation strategies by the competitors (Mankiw, 2011).

Types of Market Structures

There are four major types of market structure: perfect competition, monopolistic competition, oligopoly, and monopoly. Each of these market structures has its own features, characteristics, intensity of competition, and pricing strategies used by the competitors to operate according to the specific type of competition present in market (McConnell, Brue, & Flynn, 2009). These market structures are now comprehensively described in the following section:

1. Perfect Competition

Perfect Competition (also called Pure Competition or Perfect Market) is an ideal market structure in which there are a large number of small and large-scale competitors offering identical or homogenous products at same prices. The competitors operate in the presence of a stiff competition from the top-notch market leaders as well as from the new entrants. However, none of the competitors holds a large market share due to an extremely large number of competitors. The markets are quite open to new businesses due to the absence of barriers to entry and strict country penetration mechanisms. The governmental policies and regulations are also very relaxed for licensing, registration, or licensing for businesses in a perfect competition. The prices of products and services offered by local and international businesses are purely determined by the supply and demand forces (McEachern, 2008).

Due to an open market competition, substitutes are also found for almost every product in the market. In a perfect competition, the sellers and buyers have full knowledge of prices, technology, and processes. All the competitors in an industry use the same production techniques and technological processes which also keeps their costs of production at the same level. Therefore, they cannot manufacture their products faster or cheaper than other competitors in the industry. Due to extremely identical product and service offerings, the competitors do not generally need to advertise them on expensive media in order to attract potential customers. However, they use frequent advertisements in order to create awareness of their new offers (Taylor & Weerapana, 2009).

2. Monopolistic Competition

In contrast to perfect competition, there are three different market structures in an imperfect competition; monopolistic competition, monopoly, and oligopoly. Monopolistic competition has almost the same characteristic as perfect competition but differs due to the heterogeneity of the products, i.e. The products offered by the competitors are not identical to each other.

Stuck Writing Your "Pricing Strategies" Research Paper?

View All Our Example Pricing Strategies Research Paper

Have A Custom Example Essay Written

The market in a monopolistic competition is composed of a large number of small scale competitors with no major holder of the market share. The competitors make variations in the features and quality of their products in order to make them look different than other products in the market. Sometimes, the products offered in a monopolistic competition are referred to as close substitutes to each other. They are offered to fulfill the same consumer needs and requirements, but vary with the level of satisfaction which each product gives to its customers after its purchase. The competitors manufacture their products using same technological processes but variations in the features and quality are made possible through innovative procedures, quality management techniques, and operational excellence. Therefore, a highly competitive business environment exists for the participants of a monopolistic competition (Tucker, 2010).

Monopolistic competition offers very limited or no barriers to entry and exist to the new and existing firms respectively. The penetration in the industry may not be as easy as it is in a perfect competition, but firms do not generally face any strict governmental policies or regulations due to an open competition in the industry. The buyers in a monopolistic competition market have a complete knowledge of technologies and pricing strategies which are used by the manufacturers. It facilitates them in selecting the best brand of their choice and making better purchase decisions on the basis of different parameters.

3. Monopoly

In a Monopoly market structure, there is only one producer or supplier of a particular product or service in the entire industry. Monopoly may be created by a single firm or a group of firms that collectively dominate the market and drive the supply and demand forces according to their own policies and strategies. Monopoly exists due to high business set up costs or critical risks and uncertainties which may exist in a particular industry and restrict new businesses to emerge as competitors. Due to the monopoly power and full control over the industry patterns, the monopoly firm or group may charge a high price or reduce the quality of its products whenever it intends to do so. Monopoly market structure is often discouraged by the Governments and International regulatory authorities. It is because a monopoly does not promote an open competition in the industry which strongly discourages new investments in the country (Hall & Lieberman, 2010).

Sometimes, a government itself creates monopoly in some sector of the economy. It is done when the government feels that a particular sector should not compete with the private corporations in the country. A good example of this monopoly is electricity generation capabilities of a country which are totally controlled by its government. A similar monopoly is created by the government when it intends to take control of the natural resources extracted from the lands of a country. The oil and gas sector of Saudi Arabia is the best example of such type of monopoly where the full control of the industry is in the hands of the Saudi Government.

4. Oligopoly

Oligopoly is the fourth major type of market structures. It is classified in between the monopolistic competition and monopoly. Oligopoly refers to the level of competition among a few large competitors in an industry. There are also a large number of small competitors, but they do not have a major role to play in the competition or driving the demand and supply forces for the economy. The market in an oligopolistic competition is said to be highly concentrated. There barriers to entry or exist in this type of market structure are higher than they are in a monopolistic competition. However, new firms can enter in the industry if they use effective market penetration and promotion strategies, The entry of new firms facilitates an open competition between the few market leaders and numerous small competitors from the local and international markets. The demand and supply factors are driven by the market leaders which hold the major market share in the industry. These market leaders have a great influence on the entire industry with respect to the pricing strategies and quality of products (Mankiw, 2011).

The level of competition between these few firms is also very high which requires them to stay on the most competitive edge in order to compete with other top rivals in a profitable fashion. Oligopoly….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


Related Essays

Tesla's Problematic Pricing Strategy

Pricing Strategies and Decisions Pricing Strategy Management Pricing Policies, Processes and Methods Policies used to manage Tesla’s pricing strategy. Currently Tesla is not only benefiting by but is actually relying on government subsidies to sell its cars. Subsidies come from electric vehicle (EV) tax credits that purchasers are able to obtain whenever they buy a Tesla. The problem is that these credits are only given to consumers for a set duration. Once the government ends the subsidy, sales drop drastically, as has been in the case in Hong Kong where… Continue Reading...

Tesla's Terrible Pricing Strategy

paper will describe what Tesla does, evaluate the pricing strategies relative to the life cycle of the Model 3, Model S and Model X, which are Tesla’s top three products, summarize the critical factors that impact pricing decisions, describe the impact that value has on Tesla’s pricing strategy and profitability as well as the importance of market segmentation, and determine the effectiveness or ineffectiveness of Tesla’s price and value communication strategies. Tesla Tesla is a company that specializes in producing EVs: the company has been in business for 15 years and started off as a niche market player,… Continue Reading...

Branding Strategy and Marketing Communication Plan

of the marketing mix is price. As the target market is broad, it is prudent to use various pricing strategies. For instance, luxury consumers comprise one of the target segments. For this segment, premium pricing would be appropriate. For non-luxury consumers, for example consumers who just need a car for mobility, strategies such as market-oriented and value-based pricing can be used. After determining what product is to be offered to the target market and at what price, the next step is to define where customers can get the product (Mullins & Walker, 2013). In the automobile industry, dealerships are the most common way of distributing products to consumers.… Continue Reading...

SunPower Simulation

that the loss in profitability as well as market share of SunPower in Run 2 could largely be blamed on the decision by SunPower to increases its prices gradually without regard to competitor pricing strategies or behaviors. In this case, the company effectively charges prices higher than those charged by the firms already existing in the market as well as those making new entry. All along, SunPower’s unit direct cost ($/kWh) remains higher than that of both existing forms and new market entrants. The decision… Continue Reading...

Zara and Sprint Comparing and Contrasting

to a price-conscious consumer from multiple age groups. Although they offer completely different products, their pricing strategies are therefore similar. The shopping mall is the preferred geographic location for both Sprint and Zara stores, which are only found in stand-alone boutiques on urban high streets. Neither store has a luxury positioning but both stores offer a range of items at different prices for a diverse consumer market. Likewise, both Sprint and Zara have a few select stores for a more upscale bracket with Sprint's "Studio" line and some Zara stores located near to high end shopping zones. However, a Zara store has a far more… Continue Reading...

sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Pricing Strategies" (2012, August 29) Retrieved May 17, 2024, from
https://www.aceyourpaper.com/essays/pricing-strategies-109280

Latest MLA Format (8th edition)

Copy Reference
"Pricing Strategies" 29 August 2012. Web.17 May. 2024. <
https://www.aceyourpaper.com/essays/pricing-strategies-109280>

Latest Chicago Format (16th edition)

Copy Reference
"Pricing Strategies", 29 August 2012, Accessed.17 May. 2024,
https://www.aceyourpaper.com/essays/pricing-strategies-109280
   

Open, View, and/or
Download this Document
order custom essay example