Running Head: Pricing Strategies
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Pricing Strategies
Philip Heelan
American Public University System
March 5, 2017
Pricing Strategies
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Abstract
Market strategies play an important part in the world economy. There are four type of
market strategies and each one has their own personality in how they interact with fellow firms,
consumer and price. The basic building block that all 4 of the strategies have is Marginal Cost
equal Marginal Revenue. On what will it take to create or do the good or service compared to the
revenue it will make. The four strategies are Perfect Competition is all firms are creating the
same product with no difference and any price changes affect a firm. A monopoly is a single
firm, monolopistic competition, and oligopoly. Domino’s is a firm that has multiple competitors
but no one real dominant firm and it lands in the market strategy of monolopistic competition.
Pricing Strategies
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Market Structures
In economics there are four different strategies that study and attempt to explain how
businesses interact with each other and with their customers. Each of the different practices will
also affect the supply and demand for their business, which in turn will modify the price of
services or goods. Each of these four market structures is used in modern economies; some are
used more than others, not only depending on the business type but also depending on type of
government. Governments are instrumental in the economic growth of the country. The four
different types of markets are Perfect Competition, Monopolistic Competition, Oligopoly, and
Monopoly.
One good way to determine what market structure exists is to examine both the number
of firms and entry barriers. The measure of entry barriers is “High”, “Moderate”, and “None”
and the number of firms varies from one to few to very many (Samuelson, 2015, p. 215).
Markets with high barriers to entry create a more difficult market for competition and thus tend
to lend themselves towards monopolies. If only one firm exists in a market with high entry
barriers, the market structure is a monopoly. In a market where only a few firms exist due to high
or moderate barriers, the market is said to be an oligopoly. In a market with no barriers, there
will be many firms and the market is called Perfect Competition. Monopolistic Competition also
occurs in a market with no barriers and many firms, the only difference being the products being
sold (Samuelson, 2015, p. 215). As market structures change, it becomes necessary for
businesses to adapt. In a monopoly, where businesses are not competing with one another, then
the business does not need to find new techniques or make improvements because there is no
market pressure challenging or competing.
Pricing Strategies
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A Perfect Competition market occurs when the market puts up little or no resistance for
the entry of new businesses. In Perfect Competition markets, the ability to enter is easy due to
this lack of barriers, which means that it may be easy to start a company but that company would
also be faced with a large amount of competition. This difficulty arises from the second factor in
Perfect Competition, which is that there are also numerous firms in the same market that supply
the same good or service. Finally, “Firms and consumers are price takers. Each firm sells a small
share of total industry output, and therefore, its actions have no impact on price” (Samuelson &
Marks, 2015, p.219). When firms are competing in the same market, for them to win market
shares and increase revenue they must get more consumers to buy their product. Lowering price
is not an option, for if they lower the price the other companies in the market would do the same
thing and the ability to make profit is not as much. Firms are first and foremost looking to make
