Price strategies - a microeconomic approach

• Author: Litra, A. V.
• Position: Dept. of Economic Sciences and Business Administration, Transilvania University of Brasov
• Pages: 147-152

Bulletin of the Transilvania University of Braşov • Vol. 5 (54) •No. 2 - 2012

Series V: Economic Sciences

PRICE STRATEGIES – A

MICROECONOMIC APPROACH

Adriana Veronica LITR;1

Abstract: The paper aims at a microeconomic approach of the price

strategies, pointing out the ratio between revenue – cost, or marginal

revenue – marginal cost, in the case of different objectives proposed by the

enterprise, objectives supported by certain levels of the price. The effects of

implementing various price levels, with the contribution of the market

through demand quantity, lead the firm to reach diverse goals: actual

maximum profit; maximum turnover; an equilibrium state allowing the

protection against possible competitors, but also trying to avoid loss risk; a

rational resources use by the price fixed at the marginal cost level, or only

the survival in difficult times.

Key words: price, cost, profit, survival.

1 Dept. of Economic Sciences and Business Administration, Transilvania University of Braşov.

1. Introduction

Price is a strategic variable for the

enterprise activity. By the decisions taken

regarding price, it influences a lot of

aspects:

- demand size: generally, the relation

between demand quantity and price is a

reverse one, the level of prices having a

strong impact on sales. The intensity of

the price influence on demand depends

on the consumers’ reply to the price

change, estimated by the elasticity

indicator;

- profitability: the sale price decides on the

cost absorption with production and

merchandising;

- positioning: a product’s perception by the

consumers, its image is often influenced

by the price. Even if the rule is: high

price lowers the demand, there are

many situations when a high price

suggests a quality image, and a small

price has adverse effects as it leads to

the failure of consumers’ trust in the

product’s attributes;

- competitor products comparison: price

set up can change force ratio regarding

market shares.

2. Objectives

Price set up can not be done without

taking into consideration 3 major issues:

demand, cost and competition. In addition,

the actual concrete situation of the market

and the forecast are also decisive.

Theoretically, the firm is the one stating

the price level on the market, and the

buyers reply by a certain level of demand

quantity, but there are situations when the

producer is forced to comply with

restrictions set by the law, by the public

authority, hence limiting the variation of

prices to a maximum / minimum level.