RUNNING HEAD: ECONOMICS FOR MANAGERIAL DECISION MAKING:
Economics For Managerial Decision Making: Market Structures
ECO/GM561 International Economics
Dr Leo Stevens
Feb 7, 2011
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Quasar is the first company to enter the market with notebooks with the patent rights of optical computers. This means that Quasar Company has the advantage of a monopoly market and is a price maker. According to McConnell−Brue, “Some firms have “market power” or “pricing power” that allows them to set their product prices in their best interests,” (2004. p369). Quasar must determine the price of the Neutron to maximize their profits. On the other hand, with Orion Technologies coming into the optical computers market, Quasar is now facing an oligopolistic market.
There are essentially two ways that Quasar can sustain profits that exceed its cost of capital. One is to locate markets where competition is fragile which would permit them to continue to earn monopolistic profits. Additionally, Quasar can retain its unique assets that permit them to establish a competitive advantage for their products and services (University of Phoenix, 2011). Quasar should to price its products appropriately in order to maximize both margin and profits. Before Quasar considers set pricing, they must decide upon an adequate pricing model – and this pricing strategy should be consistent with their overall business model. In general, pricing always needs to accomplish a business goal, but that goal is not necessarily to make the most money.
I would recommend that Quasar focuses pricing on further penetrating the market. They must set proper prices in order to maximize both profits and the quantity of items they sell. They should also have a basic goal of acquiring as many customers as quickly as possible; even to consider pricing at a loss. The company must factor in that each of their customers has lifetime value, a greater value than a small gain made on first sales. With competition in their sector, more penetration pricing would be appropriate. The penetrating pricing strategy would only make sense to retain customers; the pricing strategy must realize lifetime value, (University of Phoenix, 2011).
Quasar should avoid high price tactics, or selling off their market share. By doing this, they would retain only a small percentage of the market. Quasar currently do not have the capacity to capture a niche market based on the uniqueness of their products (University of Phoenix, 2011). Their customers are not willing to pay a much higher price for this new product. In general, most businesses tend to skew a penetration price too high in an attempt to make more money. Based on Quasar’s market, it would make sense to consider cost-plus pricing; they would charge their prices explicitly with reference to average costs plus a percentage profit mark-up. Predatory pricing and limit pricing would not be appropriate (McConnell-Brue, 2004).
Quasar has a degree of control over its prices and a considerable amount of non-price competitions exists, which ultimately leads to price discrimination (University of Phoenix, 2011). As such, Quasar should focus on...