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Assignment2 economics - Essay Example

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Which pricing strategy would you use in each of the following situations What do you charge [Examples might be total cost + 10% markup, Market price (what everyone else is charging for the same product), total cost + 80%.] Explain your reasoning.
a) A new technology you have developed and recently patented…
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Download file to see previous pages The product is target at middle income earners so a higher mark up can scare them away will raise mark up gradually based on demand.
b) A new technology you have developed and recently patented. The market has been awaiting this product and its purchase by a customer will yield a tremendous competitive advantage. The only users will be very large Fortune 200 companies who have deep pockets and are anxious for the competitive advantage your product yields.
Reason: The product is based on a new technology so there are currently no competitors. Patent rights prevents the entry of competition hence 80% of mark up. Besides the buyers are affordable Fortune 200 companies waiting to double their returns based on this product. Besides the tremendous expected demand.
c) You own a railroad company. You are about to junk some old boxcars. However, there is a surprisingly tremendous demand for boxcars to be used as suites, just like the ones at Bryce Memorial Stadium at the University South Carolina.
Reason: The 30 % mark up due to the demand for the product. But the product is not patented and there is competition from other railroad companies hence only 30% will raise or lower to offer a competitive price as the boxcars will be junked if not.
f) Your company owns a 5-acre tract of land on a hill. ...
product is not patented and there is competition from other railroad companies hence only 30% will raise or lower to offer a competitive price as the boxcars will be junked if not.
f) Your company owns a 5-acre tract of land on a hill. You do not plan to use the land, but rather to keep it as 'greenspace' for your employees. You have been approached by a cellular company who wishes to place a tower on your site. They have begun discussions with another company who has a less attractive site. This company will try to negotiate for $8,000 per year.
Price of the 5 - acre tract - $8000 (or more attractive for the cellular company)

Reason: The company achieves its aim in keeping the area green as well as will receive revenue of $ 8000 as rent without any maintenance for the tower unlike a building rented.

g) You own a start up cellular company and are considering how to price your basic, standard phones if customers will sign a contract to keep your service for a year.

Price of the service will be - 10% lower than the market price
Reason: The product is new and needs market penetration among existing players. Besides the signing of contract by the customers for a year will reduce attrition and salvage the cost
Question 2: Discuss the differences in how each market type prices its product to maximize profit.
Products in different market types are priced differently. Find below a closer look at various
market types, buyer and seller ratios, pricing strategies, and the impact of advertising. Entry into
and exit from markets, Price leadership and price differentiation.
Types of Markets 4
Market with Perfect competition: In a market with perfect competition, a large number of sellers
and buyers ...Download file to see next pagesRead More
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