PRICING PRACTICES

Sub - Economics

PRICE DISCRIMINATION:

Meaning

The act of selling the same good to different buyers for different prices that are not justified by different production costs.

PRICE DISCRIMINATION:

2 Ways
by charging different prices for same product, and by not setting prices of different varieties of products relation to their cost differences.

PRICE DISCRIMINATION FORMS

Personal discrimination For example: surgeon, lawyers, teacher etc. Age discrimination For example : railways and bus transport services Locational or territorial discrimination For Example: film producer may sell distribution rights to different film distributors in different territories at different prices.
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PRICE DISCRIMINATION FORMS

Special service or comforts for instance, Railways charge different fares for the first class and second class travel Use discrimination For instance, an electricity distribution company may charge low rates for domestic consumption of electricity while still lower rates for industrial use as compared to the higher the for light and fan.
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PRICE DISCRIMINATION

Three Conditions To have market control and be a price maker, To identify two or more groups that are willing to pay different prices, and To keep the buyers in one group from reselling the good to another group.
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DEGREES OF PRICE DISCRIMINATION

First Degree Price Discrimination Under this, the monopolist charges different prices to different buyers for each different unit of the same product.

DEGREES OF PRICE DISCRIMINATION

Second-Degree Price Discrimination Under this category of price discrimination, the monopolist sells blocks of output at different prices.

DEGREES OF PRICE DISCRIMINATION

Third Degree Price Discrimination the firm divides its total output into many sub-markets and sets different prices for its product in each market in relation to the demand elasticity's.

Cost Plus Pricing or full cost pricing

Under this method cost of a productize estimated and a margin of some kind of profit is added on the basis of which the pricing is determined Empirical evidences have shown that a majority of the business firms usually set prices for their products on the basis of cost plus a fair profit percentage.
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Cost Plus Pricing or full cost pricing

Cost plus Pricing = Cost + Fair Profit. P=AVC+M For example, a firm's AVC is Rs. 50 and contribution margin (X%) is 10% P = 50 + 5 = Rs. 55

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TRANSFER PRICING

Associated with the multi-national corporations (MNCs)

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Transfer pricing refers to intra-firm pricing: the pricing of products transferred from the production or sales unit of a multinational firm in one country to the another unit of the firm in another nation.

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The Product Life Cycle (PLC)

INTRODUCTION First stage introduce new product in the market. GROWTH Second stage product gets popularity in consumers and more demand and opportunity to earn more profit and maximize sale of product. MATURITY Here the rate of increase in sales declines , the product loses its popularity. the no. of substitutes come in market. 14

SATURATION There is no increase in demand . DECLINE The sale of product starts declining . the substitute product become more popular . Here the firm should follow the break even point price policy so as to continuous its production activities. WITHDRAWAL Here almost no sale of the product . Practically the product is out of market .

FIGURE OF PRDUCT LIFE CYCLE

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