1.3.3 Pricing Strategies (2/4)

Question 1

Predatory pricing

Pros -1 & Cons -2

Answer 1

Charging a very low price for a period until one of it’s competitors leaves the markets

Pros
-Increased market share for the ‘predator’ - one less rival

Cons
-Sometimes illegal because it can lead to a lack of competition - maybe repercussions

• Consumers may find a substitute if the monopoly increases prices after their competitors leave

Question 2

Competitive pricing

pros-1 and cons-1

Answer 2

When a business sets prices based on what their competitors are charging

Pros
-Price war likely to be avoided
Cons
-May miss out on covering direct and indirect costs if solely focused on matching pricing of competitors

Question 3

When is competitive pricing used

Answer 3

when markets are very competitive and firms are cautious of a price war

Question 4

psychological pricing

Pros- 1

Answer 4

Charging slightly below a round figure to trick consumers into thinking that the product price is slightly lower
e.g £9.99

Pros
can generate more sales as consumers are tricked into thinking its cheaper