CA5102 MODULE 7: PRICING STRATEGIES FOR FIRMS WITH MARKET POWER

Cournot Oligopoly

Market structure with few firms competing on output.

Crude Estimate

Rough approximation of demand or cost without detailed data.

Higher Marginal Costs

Increased costs lead to higher profit-maximizing prices.

Identical Cost Structures

Firms in Cournot oligopoly have similar production costs.

Price Setting in Oligopoly

Firms set prices based on competitors' output decisions.

Consumer Willingness to Pay

Maximum price consumers are ready to pay.

First-Degree Price Discrimination

Charging each consumer their maximum willingness to pay.

Pricing Strategies

Methods to enhance profits beyond single pricing.

Two-Part Pricing

Charging a fixed fee plus a variable usage fee.

Block Pricing

Charging different prices for different quantity blocks.

Commodity Bundling

Selling multiple products together at a single price.

Market Interdependence

How firms' pricing decisions affect each other.

Oligopolistic Structure

Market dominated by a few large firms.

Price Discrimination Degrees

First, second, and third degree classifications.

Discount Strategy

Offering lower prices selectively to consumers.

Intense Price Competition

High competition leading to lower prices.

Special Cost Structures

Unique cost arrangements affecting pricing strategies.

Single-Price-Per-Unit Model

Charging all consumers the same price per unit.

Price Discrimination

Charging different prices for the same product.

Consumer Surplus

Difference between what consumers pay and their willingness.

Second-Degree Price Discrimination

Offering a schedule of declining prices for quantities.

Third-Degree Price Discrimination

Charging different prices based on consumer demographics.

Market Power

Ability of a firm to influence prices.

Demographic Pricing

Pricing strategy based on consumer characteristics.

Fixed Pricing

Charging the same price for all units sold.

Price Differentiation

Adjusting prices based on consumer willingness to pay.

Fixed Fee

Initial charge for purchasing rights.

Per-Unit Charge

Cost for each unit purchased.

All-or-None Decision

Consumers decide to purchase entire package.

Profit from Two-Part Pricing

Higher than single price strategy profits.

Consumer Valuation

Maximum amount a consumer is willing to pay.

Separate Pricing

Charging individual prices for each product.

Bundled Pricing

Single price for a combination of products.

Peak-Load Pricing

Higher prices during high demand periods.

Cross-Subsidization

Using profits from one product to subsidize another.

Manager's Knowledge

Influences pricing strategy effectiveness.

Peak Demand

High demand periods requiring higher prices.

Off-Peak Demand

Lower demand periods with reduced prices.

Full Capacity

Maximum output level a firm can achieve.

QH

Quantity at full capacity during peak demand.

QL

Quantity at optimal pricing during low demand.

High-Peak Pricing

Higher prices charged during peak demand times.

Low-Peak Pricing

Lower prices charged during off-peak demand.

Transfer Pricing

Pricing of goods between related business entities.

Cross-Subsidies

Profits from one product subsidize another product.

Internal Price

Price set within a firm for internal transactions.

Upstream Division

Division producing inputs for downstream divisions.

Downstream Division

Division assembling final products using inputs.

Double Marginalization

Price markup by both upstream and downstream divisions.

Optimal Transfer Price

Price where marginal revenue equals marginal cost.

Brand Loyalty

Consumer preference for a specific brand.

Randomized Pricing

Changing prices unpredictably to attract customers.

Bertrand Competition

Firms compete on price, selling similar products.

Price Wars

Competitive price reductions among firms.

Price matching

Commitment to match lower prices found by consumers.

Brand loyal customers

Consumers who consistently purchase from the same brand.

Advertising campaigns

Promotional efforts to enhance brand perception.

Randomized pricing

Strategy of varying prices to confuse competitors.

Consumer claims

Assertions made by consumers about lower prices.

Price competition

Strategy where firms lower prices to attract customers.

False claims

Misleading assertions about price advantages.

Consumer behavior

Patterns of purchasing decisions by consumers.

Frequent-filler strategy

Loyalty program offering rebates for gas purchases.

Consumer loyalty

Tendency of consumers to continue buying from a brand.