Pricing Strategies
Market Structures and Pricing Strategies
Kiona Thomas
American Public University
Econ600
Abstract
The article analyzes the four main market structures, which are perfect competition, monopolistic competition, oligopoly and monopoly. It provides a detail description of the market, as well as explains the pricing strategy a firm would pursue in that particular market. The article also concludes with a real world example of Visa pricing strategy by examining it oligopoly market structure. Visa has few competitors; however, it must continuously monitor its competitor’s actions in order to remain competitive in today’s market. While, Visa is currently out performing it competitors, they are constantly trying to expand their market.
Keywords: market structure, pricing strategy, Potomac Edison
Market Structures and Pricing Strategies
Introduction
Economist can divide today’s market into four different market structures, which are perfect competition, monopolistic competition, oligopoly and pure monopoly. The market structure will help the firm select their pricing strategy. Each market structure has a different pricing strategy the organization can use to achieve profit maximization.
Perfect Competition
What is perfect competition? Perfect competition is sometimes referred to as pure competition (Officer, 1966). According to Robinson (1934), perfect competition is “a state of affairs in which the demand for the output of an individual seller is perfectly elastic” (p. 104). In order for perfect competition to exist four conditions must be true, which are as follow:
1. Multiple firms
2. No entrants barrier exist
3. Same standardized product
4. Price takers (Samuelson & Marks, 2012).
The four characteristics are ideal for perfect competition; however, some competitive markets may not meet all the specifications (Samuelson & Marks, 2012). In a perfect competition market, there are multiple firms that offer a similar product
Kiona Thomas
American Public University
Econ600
Abstract
The article analyzes the four main market structures, which are perfect competition, monopolistic competition, oligopoly and monopoly. It provides a detail description of the market, as well as explains the pricing strategy a firm would pursue in that particular market. The article also concludes with a real world example of Visa pricing strategy by examining it oligopoly market structure. Visa has few competitors; however, it must continuously monitor its competitor’s actions in order to remain competitive in today’s market. While, Visa is currently out performing it competitors, they are constantly trying to expand their market.
Keywords: market structure, pricing strategy, Potomac Edison
Market Structures and Pricing Strategies
Introduction
Economist can divide today’s market into four different market structures, which are perfect competition, monopolistic competition, oligopoly and pure monopoly. The market structure will help the firm select their pricing strategy. Each market structure has a different pricing strategy the organization can use to achieve profit maximization.
Perfect Competition
What is perfect competition? Perfect competition is sometimes referred to as pure competition (Officer, 1966). According to Robinson (1934), perfect competition is “a state of affairs in which the demand for the output of an individual seller is perfectly elastic” (p. 104). In order for perfect competition to exist four conditions must be true, which are as follow:
1. Multiple firms
2. No entrants barrier exist
3. Same standardized product
4. Price takers (Samuelson & Marks, 2012).
The four characteristics are ideal for perfect competition; however, some competitive markets may not meet all the specifications (Samuelson & Marks, 2012). In a perfect competition market, there are multiple firms that offer a similar product
References: Officer, L. H. (1966). The Optimality of Pure Competition the Capacity Problem. Quarterly Journal Of Economics, 80(4), 647-651. Potters, J., & Suetens, S. (2013). Oligopoly Experiments in the Current Millennium. Of Economic Surveys, 27(3), 439-460. doi:10.1111/joes.12025 Robinson, J. (1934). What is Perfect Competition?. Quarterly Journal Of Economics, 49(1), 104-120. Samuelson, W. F., & Marks, S. G. (2012). Managerial Economics (7th ed.). Hoboken, NJ: John Wiley & Sons, Inc. Annual Report (2013). Visa Retrieved from http://investor.visa.com/files/doc_downloads/annual%20meeting/Visa%20Annual%20Report%202013%20final%20website.pdf