Assignment on: “In the competitive market fixing the price of a product is easy, while fixing the price in a monopoly market is difficult, where new products are introduced”

1. Assignment on: “In the competitive market fixing the price of a
product is easy, while fixing the price in a monopoly market is
difficult, where new products are introduced”
Introduction:
Pricing is the process whereby a business sets the price at which it will sell its products
and services. In setting prices, the business will take into account the price at which it
could acquire the goods, the manufacturing cost, the market place, competition, market
condition, brand, and quality of product.
How you set your prices can have a host of implications for your business. Not every
price you set needs to maximize your margins. Fixing price to compete, change market
share or create different revenue scenarios. Understanding how pricing affects your
business model, not just your bottom line, will help you better choose price levels.
Fixing the price of a product in competitive market:
Fixing the price of a new product, competition is minimal; hence the general pricing
strategies depend on different factors.
Penetration pricing is the pricing technique of setting a relatively low initial entry price,
often lower than the eventual market price, to attract new customers. The strategy works
on the expectation that customers will switch to the new brand because of the lower price.
Skimming involves goods being sold at higher prices so that fewer sales are needed to
break even. By selling a product at a high price, sacrificing high sales to gain a high
profit is therefore "skimming" the market.
The decision of best strategy to use depends on a number of factors. A penetration
strategy would generally be supported by the opportunity to keep costs low, and the
anticipation of quick market entry by competitors. A skimming strategy is most
appropriate when the opposite conditions exist.
Consider a firm in an competitive market wants to fix its price. How will the other firms
react? There are 2 possibilities: they can either match the price or ignore them. But what

2. the other firms will actually do will probably depend on the direction of the price change.
If one firm raises its price, the others probably will not follow, since that will allow them
to take market share from the price changer. If the firm raises its price, then many of its
customers will buy from the other firms, lowering the revenue of the higher-priced firm.
Monitor Your Pricing
Another key component to pricing your product right is to continuously monitor your
prices and your underlying profitability on regular basis. It's not enough to look at overall
profitability of your company every month. You have to focus on the profitability (or
lack of profitability) of every product you sell. You have to make absolutely sure you
know the degree to which every product you sell is contributing to your goal of making
money each month. Remember: "People respect what you inspect."
Here are some other practices to help you price right:
Listen to your customers. Try to do this on a regular basis by getting feedback from
customers about your pricing. Let them know you care about what they think.
Keep an eye on your competitors. If you don't have deep pockets and can't afford to hire a
market research team, hire some college students to go out on a regular basis and monitor
what your competitors are doing.
Have a budget action plan in place. Try to have a plan for your pricing that extends out
three to six months in the future.
Fixing the price of a product in monopoly market:
Monopoly market is a Market structure in which there is one seller who sets the price.
Monopolist is the sole seller of its product.
Monopoly exists when a single firm is the only producer or seller of a product that has no
close substitute. Entry into the industry is difficult firm is the industry
The characteristics of monopoly are Single seller, no close substitute, price maker,
blocked entry, non-price competition, and non-availability of information.
Information may be imperfect. Firms will not enter an industry if they are unaware of the
supernormal profits currently being made.

3. Firms are likely to be different from each other not only in the products they produced or
the service they offer, but also in their size and in their cost structure. Also the entry may
unrestricted.
The model concentrates on price output decisions, in practice the profit maximizing firm
under monopolistic completion will also need to decide the exact variety of products to
produce and how much to spend on advertising.
Compared to perfect competition, Less will be sold at a higher price. Firms will not be
producing at the least –cost point. Firms have excess capacity. On the other hand it is
often argued that these wastes are insignificant and perhaps well compensated to the
consumer by the great variety of products to choose from competitive market.
A monopoly sets its price above marginal cost. It places a wedge between the consumers’
willingness to pay the producer costs. The monopolist produces less than the socially
efficient quantity of output.
Lack of completion to drive down cost. Less incentive to innovate.
Recap:
Fixing the price of a product in competitive market is easier than monopoly market
because in competitive market we get the idea for price level, market share, what the
market is willing to pay, how your company and product are perceived in the market,
what your competitors charge, whether the product is "highly visible" and frequently
shopped and compared, the estimated volume of product you can sell.
Conclusion:
Since pricing has a direct impact on a company's revenue, and thus profit, setting the
right price is essential to a company's success.