Price Competition based Market based

Pricing Strategies
Cost-plus pricing (fixed eg 25%)
% of profit above the costs
Marginal-cost pricing (eg internet)
When all fixed costs are covered
Contribution pricing = profit only above the certain number sold

Competition-based
Price leadership = small following the big
Predatory pricing = price to push competitor out. e.g. Amazon
Going-rate pricing = not able to control. e.g. farmers

Market-based
Price penetration = low price to break in
Price skimming = innovative product
Price discrimination = different at different time, not easily traded

Market-based
Loss leaders = low prices to tempt customers into the store
Psychological pricing = 19.99
Not for luxury goods. Perception.
Promotional pricing = low demand, eg BOGOF or half price to boost customer awareness

Supply and demand
Prices affect demand, people might buy a substitute or from a competitor
Invisible hand. Adam Smith
Low supply for a wanted good creates a shortage pushing the prices up

Elasticity
Price elasticity of demand
% change in demand
% change in price
More than 1 = elastic
Less than 1 = inelastic
Exactly 1 = Unitary elasticity

Elasticity
Income elasticity of demand
%change in demand
%change in income
Very Income elastic = Luxury goods
Usual situation = Normal goods
Negative YED = Inferior goods

Elasticity
Cross-elasticity of Demand XED
%change of demand of good A
%change in price of good B
Positive XED = substitutes
Negative XED = complements
Zero XED = no relation