External factors in governing prices

Question

What are the external factors in governing prices?

Answer 1

External Factors are as follows:

These factors are ahead of the control of organization. The given are the major external factors.

1. Demand: when the demand for a product is inelastic this is better to fix a higher price and when demand is elastic, so lower price may be fixed.

2. Competition: Number of substitutes obtainable in the market and the extent of competition and the price of competition and so forth is to be considered during fixing a firm price.

3. Distribution channels: Conflicting interest of middleman and manufacturers is one of the significant factors that influence the pricing decision. So, manufacturer would desire that middleman must sell the product at a minimum mark up.

4. General economic conditions: throughout inflation a firm forced to fix a higher price and in deflation forced to decrease the price.

5. Government Policy: when taking pricing decision, a firm has to take in consideration the taxation policy and trade policies of the Government.

6. Reaction of consumers: When a firm fixes the price of its product unfairly high, the consumer might boycott the product.