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Lecture 6

ECON 208 Lecture Notes - Lecture 6: Price Ceiling, Real Prices And Ideal Prices, Forego


Department
Economics (Arts)
Course Code
ECON 208
Professor
Paul Dickinson
Lecture
6

Page:
of 2
Eco Lecture
Economic Value to the Customer (EVC) is based on the insight that a customer will buy a product only if

a product depends on its value to the customer minus its price.

Rearranging gives:

us to



advantage its product has to the customer over the rival product.
Atlantic Computer has developed software that allows their servers to host twice as much webspace as
its rivals. How should they price this new software-server combination?




m the competitor is $6,800.

Practical Implementation of EVC analysis in a firm

ature. Skill here reaps large rewards.

Be honest about who your closest competitor is
Be honest with yourself about the price that competitors sell their
product for.
Get the units and time-horizon right. This is far easier to do when



was churned out by generic software.

Have an independent lab do measurable testing.
Often current customers are willing to take partin benchmarking stud-
ies, as they view it as free consulting.
 

point will be.
How far should a firm discount from EVC?
ould price
at the EVC. This is not the case. The EVC describes only the maximum price a




$20 in one-dollar bills and says you can keep the money, under one
condition: You have to share some of it with another person. You


What do you do?
This suggests a 50 percent discount rule.
priced not at the suggested

so that it priced the product at $9,800.
Set price closer to EVC if.
(1) End-
end-use.


them than for other bouquets.
(2) Shared-

value for pillow-top mattresses and expensive bedding because usually


which they evaluate separately when they make purchase decisions. Price
closer to EVC if your product falls into an advantageous mental account


d a $300 tax rebate special to coincide with the 2008 Bush tax
rebate checks.