5.4 External Factors Affecting Pricing Decisions

Types market and demand

	The structure of the market affects the pricing.
	There exist different types of markets from a single seller to few and large sellers and buyers, each one with its features that separate it from the other.

Pure Competition.

			The market of pure competition is charecterised by many buyers and many sellers.
			The market of pure competition is charecterised by many buyers and many sellers.
			Any attempt by the seller to change price will leave him with unsold commodities as the buyers will buy from competitors in the market.
			In this market there should not be much of marketing research and advertisements as it will increase cost without corresponding returns.

5.4 External Factors Affecting Pricing Decisions

Monopoly.

			Contrary to the pure competition, pure monopoly is a market situation whereby there is single seller in the market.
			Price in the market is single handedly determined by the monopolist
			Monopoly market emerges due to patent right, licenses, mergers etc.
			However, the government regulates monopoly in some instance to ensure customers are not exploited.
			A firm in this market might not spent for advertisement and marketing the product.

Monopolistic competition.

			This type of market combines some features of pure competitive firm and pure monopoly as described above.
			There are relatively large number of buyers and sellers in the market.
			The sellers, because of their differentiated products influence the prices of products in the market.

5.4 External Factors Affecting Pricing Decisions

			The competition here tends to be tense and the buyers try to locate the firm that can offer best product and prices for them.
			There is need to convince customers, explore the needs and values of the customers so as to design products accordingly.

Oligopoly.

			This is a market situation that consists of few sellers.
			The interdependence of price decision is one unique feature of this market.
			Suppose there are two firms as A and B.
			Firm A sets price of its product, firm B also sets price similar to that of A.
			There is no much competition in the market.
			Upon a time the oligopolists collide to charge a single price and market collective gain that could be higher than the individual gains.

5.4 External Factors Affecting Pricing Decisions

Nature of Demand

	The law of demand states that the higher the price the lower the quantity of a commodity to be demanded.
	Demand is the amount of a commodity that buyers are willing and able to purchase at a particular time given a certain price.
	The price plays a significant role in determining the quantity demand to be purchased by the buyers.
	The relationship between demand and price is negative.
	This is true for normal commodity.
	The demand curve slopes downward to depict the relationship mentioned above.
	However, the nature of the commodity or the elasticity of demand of the commodity determines how much price should be set for a particular commodity.
	If a commodity has elastic demand, revenue will be more by setting lower prices.
	On the other hand, if the commodity has inelastic demand it could raise revenue by raising prices.
	In other words price sensitiveness is higher in the case of item with elastic demand and lower in the case of item with less elastic demand.

5.4 External Factors Affecting Pricing Decisions

Competitors’ Costs, Prices and Offers.

		A company that adopts high price strategy may attract competitors into the market.
		However, the high price could be due to the cost structure of the company.
		In addition, a potential buyer of Nokia may like to see the Samsung similar product and price and then compare it with Nokia in terms of value and price before he makes final choice.
		Nokia needs to make a comparison with Samsung in terms of costs, price, quality and services so as to benchmark its own product with Samsung otherwise it may lose revenues that would come from sales.