The competition within the market today is extremely high, for this reason, businesses must be attentive to their opponent’s actions in order to have the comparative advantage in the market. When firms are deciding to consider applying any type of pricing strategy they must be aware of the following reasons in order to make an appropriate choice which will benefit their business. The firm’s decision on the price of the product and the pricing strategy impacts the consumer’s decision on whether or not to purchase the product. It helps consumers to have an image of the standards the firm has to offer through their products, creating firms to have an exceptional reputation in the market. Pricing is one of the most vital and highly demanded component within the theory of marketing mix. It can be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. The price can be set to maximize profitability for each unit sold or from the market overall. Alternatively, it may refer to suppliers’ benefiting to excess from a short-term change in the demand curve.Ī business can use a variety of pricing strategies when selling a product or service. The term is not in widespread use in mainstream economic theory, but is sometimes used to refer to practices of a coercive monopoly which raises prices above the market rate that would otherwise prevail in a competitive environment. In jurisdictions where there is no such crime, the term may still be used to pressure firms to refrain from such behavior. The term is similar to profiteering but can be distinguished by being short-term and localized, and by a restriction to essentials such as food, clothing, shelter, medicine and equipment needed to preserve life, limb and property. In the former Soviet Union, it was simply included under the single definition of speculation.
Example of predatory pricing strategy free#
In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market, or to windfall profits. In precise, legal usage, it is the name of a crime that applies in some jurisdictions of the United States during civil emergencies. Usually this event occurs after a demand or supply shock: common examples include price increases of basic necessities after hurricanes or other natural disasters. Price gouging is a pejorative term referring to when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair, and is considered exploitative, potentially to an unethical extent.
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