Pricing strategies

							                           Pricing strategies

Neo classical theory of the firm assumes that firms set price by equating
MC with MR and charging the highest price possible as dictated by the
demand curve.

However in reality firms may use a range of different strategies to set
price.

1. Cost plus pricing. Calculate AC and add a % for profit.

2. Competitive pricing. Price set just below that of competitors.

3. Destroyer / predatory pricing. Price set below AC (make a loss) so
   that your competitors make a loss and go out of business.

4. Skimming / creaming. Set a high price first to get those who are
   willing to pay the high price then decrease price to increase sales.
   Normally used with new high tech products. (producer trying to take
   back some consumer surplus)

5. Psychological. £999.99. This makes the goods appear cheaper.

6. Loss leader. Shops often sell some goods at a loss to attract people
   into the shop. When they are in the shop it is hoped they will buy
   other full price items.