An Examination of Pricing Strategy: the Lego Group, Ltd

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|Running Header: Pricing Strategy | |An Examination of Pricing Strategy | |The LEGOTM Group, Ltd | | | |Jay R. Johnson | |4/1/2012 |

American Military University

|We will examine the market structures of Monopoly, Monopolistic Competition, Oligopoly, and Perfect Competition and there subsequent pricing | |strategies. Using this information we will examine in brief The LEGO Group as a Monopoly and now competing with Monopolistic Competition | |tendencies. |

Legos have been sent into the edges of space aboard a weather balloon, two teens from Toronto, Canada on 25 January 2012, and been assembled on the International Space station by a Japanese Astronaut on 24 February 2012, gaining huge attention for the eighty year old toy maker. In this paper we will discuss the four common types of market structure: Monopoly, Oligopoly, Monopolistic Competition, and Perfect Competition and the different pricing strategies available to each of them. In the case study we will examine the monopolistic competitive market of interlocking brick children’s construction toys, and how The LEGOTM Group has competed with other toy makers now that its patents have expired. Companies that have been monopolies, and now have to compete openly, must diversify their market or parish.

A Monopoly is the simplest to define but is often misunderstood as a market influence. Merriam-Webster defines monopoly as: exclusive ownership through legal privilege, command of supply, or concerted action; exclusive possession or control; a commodity controlled by one party.[1] Economists identify it as an enterprise that is the only seller of a good or service.[2] What most individuals understand about a monopoly is that it is free to set any price it wishes to for a product and will therefore set it above market level, above the market level for demand, thereby increasing the monopolies profits at the expense of the consumer. Economists’ further debate, versus the morals of wealth transfer or depriving the public, that it reduces the aggregate economic welfare (Stigler, 1988). This is to say that an economist not wanting to say who is morally straighter, the drug dealer or the addict, the effect of a monopoly on the economy is to drive down the economic benefit of stimulating the economy to its maximum effect and thereby depriving the world of something morally worthwhile. Monopolies are further identified as natural when the price of entry into the market has resulted in there not being enough demand for a product or service to justify a second, or more, competitor to enter the market. An example of this type of natural monopoly is a single lumber or hardware store in a small town. There are also natural monopolies created or controlled, with barriers to entry, by the government. Examples of these are utility companies and internet and cable providers. While I could dig a well and septic tank for water and sewage, and I could build a windmill or place solar panels on my roof for electricity I only have one choice if I don’t want to produce these things myself. The government has chosen to...
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