MGTA02H3 Lecture Notes - Lecture 4: Contribution Margin, Market Price, Variable Cost
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MGTA02H3 Full Course Notes
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2 things determine the business" ability to set its price: the degree of competition, the business" costs. Cost based pricing based on company"s costs and profit margins. Value based pricing based on consumer"s perception of value. Setting price: if pizza costs . 00 to make, business must charge at least . 01. Characteristics: large number of small sellers, offering more-or-less the same product. Buyer has the right to walk away from any seller and look for a better deal. Firm has a limited ability to dictate the product"s price. Pricing: must charge what everyone else is charging => market price at any particular time, the prevailing price to which buyers and sellers agree: oligopoly market. Characteristics: small number of competitors watch each other closely; must match prices; try to convince potential customers that their product is different or better in some way by branding. Pricing: spend money of branding, advertising, and other forms of promotion: monopolistically competitive market.
