Monopoly in International Context Monopoly When firms hold large market shares, consumers risk paying higher prices and getting lower quality products than compared to competitive markets. However, the existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power that a monopoly may confer, for instance through exclusionary practices. Predatory pricing: Predatory pricing (also undercutting) is a pricing strategy where a product or service is set at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to
A rise in this ratio can signify that the firm has a competitive edge in the market and so it is able to charge higher prices for its products, or the firm is able to obtain its supplies at a lower cost. If this ratio remains stable while the net profit ratio is falling, which is the case for EYSI; this can signify that the control over expenses is weak. (CIMA, 2012) mentioned that the net profit ratio signifies the profit from trading operations before the interest costs are
It is depends on the existing firms and the “height” of barriers to entry that attributes of an industry’s structure. The threat of new entrants will affect by: Firstly, the economics of scale as “high” barriers to entry into the industry that can make the industry more attractive because of the existing firms can earn expect above normal profits. Secondly, the product differentiations that the existing firms have their own brand identification and customer loyalty that will lead to new entrants use more costs to start other industry and then reduce their potential return. Thirdly, cost advantages independent of scale mean that the existing firms have a whole range of cost advantages. There are proprietary technology, managerial know-how, favorable access to raw materials, and learning-curve cost advantages.
Such loyalty reward systems act as a motivator for customers to invest in making a continuous relation with the company & creates a pseudo-firewall preventing them to reach out to competitors. V) Dynamic Pricing Setting prices closer to the moment when a customer needs a product or service is increasingly possible, but it requires a deep understanding of full and marginal costs and investments, and of the value proposition for the customer. CURE FOR PRICING MYOPIA Responses to the below mentioned fundamental questions shall provide the first step to reduce pricing myopia: i) What is the effect of price fluctuation by 1%, on the bottom line? ii) Which are/are not the price sensitive customer? Why?
The companies involved in the price war can take steps to curtail their Selling, General and Administrative (S, G & A) expenses to improve their performance. If the company’s pricing strategy succeeds, the company will earn good operating profits. However, if it fails, the curtailed and well planned S, G & A expenses will help the company mitigate the competition risks. The lower S, G & A expenses as a percentage of revenue indicates a better performance. Sainsbury’s already had much lower S, G & A expenses as a percentage of its revenue than that of Morrisons.
A portion of the profits are: An opposite auction furnishes purchasers with the most intensely estimated answer for their needs by pitching suppliers against one another to be the one offering the least evaluated offer. It spares time in the procurement furthermore streamlines the procurement process and also decreases the need to send an alternate appeal for proposal to every potential supplier. It just as has a few burdens that makes it a terrible system like making issues when fitting controls are not placed set up. Rivalry at the most reduced cost can make a few suppliers to reduce quality to increase throughput to boost profit or even send them bankrupt when the task ends up being a misfortune. Since this is built exclusively with respect to value, quality and standard may be traded off and forceful under-offering practices can bring about supplier winning an agreement that can't be totally executed at the concurred
Threat of substitute products or services. This force studies how easy it is for consumers to switch from a business 's product or service to that of a competitor. It looks at how many competitors there are, how their prices and quality compare to the business being examined and how much of a profit those competitors are earning, which would determine if they have the ability to lower their costs even more. The threat of substitutes are informed by switching costs, both immediate and long-term, as well as a buyer 's inclination to change. In exploring the implications of the five forces eliminating today’s competitors through acquisitions could reduce an industry’s profit potential, government policies could play a role by changing the relative strength of the forces, and use the forces to understand complements.
Thus, it is expected that the smaller the company, the greater the probability of delisting (Boot, Gopalan & Thakor, 2008); (Michelsen & Klein, 2011). Boot, Gopalan & Thakor (2008) and Michelsen and Klein (2011) state that there is a negative relationship between firm size and underpricing. It is expected that the greater the company, the smaller the probability of delisting. This is due to the liquidity of the small companies will be reduced and the chances of going private will be increased because they draw less attention from the market and analysts. The amount of investment in the intellectual capital (IC) elements is affected by the firm size due to the availability of resources and because of the political costs, a higher disclosure is encouraged from the larger size of the
Price actually have an influence on the customers’ positioning of brands and affects financial performance. It plays a dominant role in positioning strategy and pricing decisions. Pricing objectives are to make sure that a company makes profit and survive in the market. In certain cases, price can become measure of the product quality. Luxury products tend to link to a higher price.
Management will be able to distinguish between profitable and non-profitable activities. To maximize profits, management will opt to concentrate on profitable operations and obliterate non-profitable ones. Channelling production in the right line is a good example in the decision-making process of a firm. Furthermore, costing can be useful in periods of recession and competition for decision-making. During trade downturns, businesses cannot afford to have leakages which pass unchecked.