Pricing Strategies for Firms with Market Power and the Economics of information
Summary and perspectives:
Chapter 11 of pricing strategies for Firms with market power discusses the basic concepts of how firms manage their prices taking into consideration the power share of the market that they have. This also depends on the market strategies taken by the firm and the powers can be monopolistic, oligopolistic and perfect competition. Each of these market type operations give the firm a different unique power of controlling the prices of good they produce. A concept of interest in this chapter is how firms are able to manage prices economically to expand on their profits and minimize chances of loss.
Chapter 12, Economics of Information, on the other hand discusses how information dissemination affects the market. This chapter considers how consumers are able to manage uncertainties and risks and how information asymmetry and incomplete information affects the market operations. Firms manage prices of their goods perfectly through price discrimination. Price discrimination is a marketing strategy held by firms whereby firms charge different prices on a similar product. Price discrimination occurs perfectly in the monopoly market where the firm is the price maker. This is a unique point of economic analysis that is overlooked by certain firms and use of game of chance by others.
The matter of concern is that whenever the firm enjoys the market power of choosing the price and the consumer apparently accepts to be the price, then, the firm will enjoy segregating its prices to suit the various consumers they have resulting to different levels of prices discrimination such as first, second and third-degree price discriminations. First-degree price discrimination is the practice of firms charging each customer his own reservation price, where reservation price is the maximum price a customer is willing to pay for a good. Second-degree price discrimination is the habit of firms charging different prices for different quantities of the same product they produce and third-degree price discrimination is the practice of firms segregating their customers into two or more groups with separate demand curves and charge different prices to each group. My point of concern as a business owner would be to totally consider price discrimination as a marketing strategy and use it appropriately.
The second concept I found of interest in this paper examines how consumers behave in the market in relation to information dissemination. This result from uncertainties in the market such as information asymmetry. Every moment consumers experience information asymmetry, it results to either adverse selection or moral hazard in the market. Moral hazard is a situation where one party to a contract takes a prior hidden action to benefit him at the expense of the other person due to existing information asymmetry while adverse selection is a situation of individuals having hidden characteristics that results into a group of individuals with undesirable characteristics. It is of no doubt that as a business owner, it would be my concern to ensure elimination of information asymmetry through perfect information as a basis for Economics of Information. I would hence revoke this ill position of information asymmetry for the sake of the consumer and the business.
Who, What, When, Where, Why and How:
With reference to price discrimination as a marketing strategy and information dissemination on analysis, decision of the 5 W’s:
Who analysis is specific to any business, organization, sole proprietor, both private and public investors and non-governmental organization who are concerned with making decisions to reach out to clients and customers who with different interest and abilities in each respective area of concern. For example, the business partners can target the customers with different purchasing powers. The institutions listed above will also ensure perfect information dissemination to their target groups.
What is rather specific to the intended issue or item that is out to be set on price discrimination and for targeted information symmetry. It can be a profit or loss for profit-making organizations or achieving a desired objective for the not-for-profit organizations.
When targets to identify the period to which the discrimination of prices and information dissemination is targeted. This gives the time objective of achieving the “what’ analysis.
Where gives the places or areas at which the organization is to use these tools. For instance, the management may target to use price discrimination in product market, or production and any place of operation identified, similar to information dissemination.
Why aims at exploring the main reason behind using price discrimination and information symmetry. This will give conclusive reasons to non-involved members who may be interested to understand the process.
How outline the manner in which information dissemination and price discrimination is going to be implemented. This would give the organizational plan of putting in place the tools suppose new, as a primary consideration and for adjustment and improvement of the tools if they are already in use as a secondary consideration. With the consideration of the 5 W’s analysis, the implementation of the tools must certainly succeed.