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Terms in this set (25)
Market Skimming Pricing
Setting a high price for a new product to maximise revenues from consumers who are willing to pay the price
High price for a unique product
Example of a brand that uses premium pricing
Market Penetration Pricing
Setting a low price to get lots of demand and a high market share
Formula for markup pricing
Selling price = Cost of goods sold + (markup price * cost of goods sold)
What is perfect price discrimination?
Charging the consumer the maximum amount they would pay, taking all consumer surplus
Why is it difficult to implement perfect price discrimination?
Transaction costs and information restraints from knowing what the maximum price they would pay is
What is second degree price discrimination?
Charging different prices for different quantities
What is third degree price discrimination?
Charing different prices to different groups for the same product e.g. rail card
What makes third degree price discrimination work?
The segmented group must have observable characteristics
Why do we have two part pricing?
When we know the demand information but you cannot charge different prices for different units sold
What does two part pricing consist of?
Fixed fee & Per unit charge
How do you work out the fixed fee in two part pricing?
Equal to consumer surplus
Putting together identical products and selling as a package
Example of block pricing
Paper, cans of soft drinks
Putting products together and charging one price for the bundle
Why does bundling create barriers to entry?
Makes it harder for a firm with only one of the products to enter the market
What's an advantage of bundling?
Capturing more consumer surplus
When is bundling relevant?
A large variance in consumer demand among products
What is strategic thinking based upon?
Thinking beyond short term profits and considering how to maintain the market over a long period of time