In a market, each company must adopt a pricing strategy which will enable the company to thrive. For that, it is necessary to determine certain parameters before entering into the pricing strategy technique. These parameters are concerned with determining production costs, evaluation of competition (i.e., the competition which can exist between the various firms in a market), to include/understand the inherent needs) and desires (wants) of the customers. These are things which will allow a coherent fixation of prices.
The most difficult task faced by a firm is comprehend the customers budget in order to receive good service, it should be specified that the pricing strategy so adopted by the firm must be coherent compared to the positioning of the product. Moreover, one company lays down its pricing policy according to the objective fixed i.e., to increase its market shares while selling in great quantities at a price relatively low or with decreased profitability (to sell a small quantity at a high price).
Thus, various strategies can act on the prices and can be employed by the company. It will be thus interesting in our case to first of all be acquainted with the general information related to the fixing of the prices. Thereafter, it will be necessary to detail the six following elements, i.e., discrimination by the prices, the bound sales, tariffing in two phases, the asymmetry of information, the auctions and yield management. We will thus highlight the consequences of each of these elements in the pricing strategy, for the company and the customer. This last plays obviously a key role in the price determination.
The price discrimination is a variant of non-uniform pricing policy where the company pays a floating price for the same goods as the consumer.
The price discrimination is a source of profit because it allows you to pay more to consumers who place a higher value than others on a product.
-Conditions for price discrimination:
The company must have some market power (ability to price above the marginal price).
The company must identify customers to whom it may charge a higher price.
The company must be able to prevent or restrict the resale of units acquired at lower prices to consumers.
In general, we speak of tying or bundling, or conditional sale, where goods can be acquired only if they are bought simultaneously with another good or service.
It is important to note that in a number of countries, this strategy of tying is prohibited by law. However, this law is enforced with varying degrees of tolerance and in the interpretations of the word "product". Indeed, nowadays, often tying generates anticompetitive and monopolistic tendencies.
The competitive effects of tying are:
They can exercise market power.
They are a tool of price discrimination.
Sales subordinate can achieve a reduction of transaction costs and production.
This strategy can deter entrants from enter only one product in the market as it reduces their profit potential.
[...] The procedure is performed by a third party who may be an auctioneer or a website. If there is a reserve price (minimum price the seller's asking) and it is not reached, then the procedure is canceled and sometimes, additional time is required to make a higher bid. The different types of auctions: - The English auction (or bottom): This bid is the best known, particularly in auction houses. The auctioneer starts with a reserve price (minimum price). Each partner bids successively higher prices and the auction ends when only one candidate is left. [...]
[...] The underlying message of that bundling is that competitors are not able to ensure such quality. The "tied" sale III. Two-part tariffs Principle: The company charges a fixed amount (first part) that gives the consumer the right to buy as many units as desired at a specified price (second part). Both sides of this type of pricing are as follows: - Part 1 = fixed = Sum Right of access. - Part 2 = Part = Supplement variable depending on the quantity purchased or consumed. Examples: a. [...]
[...] Moreover, there may be a genuine desire to conceal information: we do not know the production costs of competitors. Also, business leaders hold a broader vision of their company and more information than employees. - Homogeneity of products: the multitude of brands on each market, promote product differentiation. - Free entry / exit: Sunk costs when selling, and promotion costs and government regulations in case of entry (SNCF ⋄ legal monopoly) are against this condition. - Mobility of production factors: specific assets are not perfectly mobile because the conversion costs would be enormous. [...]
[...] - Reverse auctions: It is a widely used method of trading on marketplaces. It is the buyer who takes the initiative by posting his specifications. Interested Vendors then have a limited time to make quotations. - Internet auctions: These are auctions using the Internet as a medium, where the auctions are real time (automatic updates). This is the case of the auction on eBay, the site where all types of products and services are sold by vendors from around the world. [...]
[...] Thus, various strategies acting on prices can be used by the company. It will be interesting in our case to see the generalities related to pricing, and then to detail the following six elements respectively: The price discrimination, tying, two-part pricing, asymmetric information, auctions and Yield Management. We will thus demonstrate the consequences of each of these elements on prices for the company and the customer. The latter obviously plays a crucial role in determining price. I. The price discrimination Explanation ¬ Definition: The price discrimination is a variant of non-uniform pricing policy where the company can charge a variable price for the same goods from different consumers. [...]
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