17 terms

Lec 7: pricing (ch 17)


Terms in this set (...)

Price discrimination
Where a firm sells the same product at different prices so that they can maximise profits from the sale of a product

For a business to practise price discrimination, it must be able to set prices, separate market so as to prevent resale from the cheap to the expensive market, and identify distinct demand elasticities in each market
Limit pricing
Where a business keeps prices low, restricting its profits, so as to deter(阻止) new rivals entering the market
Mark-up pricing
A pricing strategy adopted by business in which a profit mark-up is added to average costs

This is a cost-baed pricing strategy/ The profit mark-up set by the business is likely to alter depending upon market conditions, such as the level of consumer demand and the degree of market competition
Reserve capacity
A range of output over which business costs will tend to remain relatively constant
First-degree price discrimination
Where a firm charges each consumer for each unit the maximum price which that consumer is willing to pay for that unit
Second-degree price discrimination
Where a firm charges a consumer so much for the first so many units purchased, a different price for the next so many units purchased, and so on.
Third-degree price discrimination
Where a firm divides consumer into different groups and charges a different price to consumers in different groups, but the same price to all the consumers within a group
Predatory pricing
Where a firms sets its average price below average cost in order to drive competitors out of business
Peek-load pricing
The practice of charging higher prices at times when demand is highest because the constraints on capacity lead to higher marginal cost
Inter-temporal pricing
This occurs where different groups have different price elasticities of demand for a product at different points in time
Two-part tariff
A pricing system that requires customers to pay both an access and a usage price for a product
Loss leader
A product whose price is cut by the business in order to attract customers
Full-range pricing
A pricing strategy in which a business, seeking to improve its profit performance, assesses the pricing of its goods as a whole rather than individually
A good or service that is produced as a consequence of producing another good or service
Transfer pricing
The pricing system used within a business organisation to transfer intermediate products between the business's various division

The optimum transfer price between divisions from the point of view of the whole organisation is likely to be equal to the marginal cost
Traditional economic theory
Traditional economic theory assumes that businesses will set prices corresponding to the output where the marginal costs of production are equal to the marginal revenue. They will do so in pursuit of maximum profits

The difficulties that a business faces in deriving its marginal cost and revenue curves suggest that this is unlikely to be a widely practised pricing strategy
Price a product
Products will be priced differently depending upon where they are in the product's life cycle.

New products can be priced cheaply so as to gain market share, or priced expensively to recoup cost. Later on in the product's life cycle, prices will have to reflect the degree of competition, which may become intense as the market stabilises or even declines