The Firms Competing in the Market - Essay Example

In Saudi Arabia, the oil cost to the government is extremely low but they charge a good amount of price in the market to encourage more competitors in the market. This is just one example. Another example of this can be the market public utilities where huge sums of investments are required. The governments in order to finance such large investments often keep high initial consumer prices to make sure that more and more companies enter the market and total investment in the country increases as it has many macro-economic advantages.

Price skimming is said to be very advantageous for the new firm entering the market and also for marketing as a whole. A higher price would mean higher profits for the firm itself and they won't have to resort to lower revenues and lower profits in the context of penetration pricing. Sometimes penetration pricing or lower prices set by new market entrant results in price wars between the firm which leads to each firm trying to charge the lowest possible price in which the revenue and profitability of all the other firms also fall as a consequence.

This is also known as dirtying the market like no other company in the market is being able to charge the price which the company is most willing to charge and hence this again leads to falling in profits and results in "fights without gains" for all the firms competing in the market.