Analysis of Market Structures and Relating Pricing Strategies Research Paper

Analysis of Market Structures and Relating Pricing Strategies - Research Paper Example The decision of what the price for any given product or commodity should be made often has little to do with what it actually costs to produce and distribute a particular product. Fixed costs such as these are invariably influenced by the surrounding market structure in which the enterprise must operate. An evaluation must be made concerning what effect competitors will exert upon the market in which the firm operates. This becomes at least as important as any material production costs. Different strategies must be depending upon how other sellers are likely to react and what effect these sellers are able to exert upon the particular firm in question. The ability to shape the marketplace is an essential characteristic underscoring any market strategy, even as the rival firms try to do the same. It is necessary to cultivate an understanding of what effect the target firm's choices will have on the market place and how this interplay controls the behavior of other sellers, if any influ ence is meaningful (Samuelson & Marks, 2012) Depending on the political and economic environments in which the target firm finds itself, there is the possibility that other firms are effectively invisible, or remain so powerful that no plausible action can change the market. Relative to the status and assets of the target firm, other competitors may prove to be so small that their behavior has no discernible impact on the larger marketplace in which the target firm operates. In this case, it is possible to adjust prices in order to capitalize on opportunities to deliver the product or service in question – with concern only for what the law and buyer can pay. The other possibility is a setting, in which competing firms exist, that are so large and powerful relative to the target company that virtually no pricing decision will change the fundamental forces of supply and demand within the economic theater. This constitutes the reverse of the previous situation, and short-term o pportunities should be considered in this case, resulting in a different strategic environment with respect to pricing decisions. The interplay can become especially complicated in the third environment, in which the other sellers delivering the commodity in question are of approximately equal size to the target firm and are, therefore, influential and influenced by one another. Each company must be concerned only partially with real costs in terms of the physical delivery of goods and services, but must instead constrain oneself based on the behavior of competitors of equal size. In this case, physical production costs may have renewed importance because the firm capable of reducing them can command an obvious advantage over its rivals. Yet such gains may be temporary as this will prompt competing operations into a drive of innovative cost-cutting, which in a competitive marketplace is likely to be ongoing. The interaction of supply and demand colors each of these scenarios. A riva l firm exponentially larger than a given target firm has the potential to be much more competitive. If the disparity is too great, even if the target firm is able to deliver a commodity at a lower price, it would not be able to meet the demand already supplied by the much larger firm. Here is a problem of "getting a foot in the door," and regardless of