Assignment:
"Predicting Price-Setting Strategies" Please respond to the following:
• From the scenario for Katrina's Candies, determine the importance of predicting the pricing strategies of rival firms in an industry characterized by mutual interdependence. Examine the common price setting strategies of airlines that use game theory. Predict the potential effects of such pricing strategies on the demand for seats, and conclude the resulting impact on the profitability of the airlines
Peer Response
Pricing decisions are the most important decisions made by a company. The price is affected by the competitive structure of a market. Katrina Candies operates as an Oligopoly market structure. From the scenario, it would not be in the best interest of Katrina Candies' to depend on price changing to help affect their profits. In an Oligopoly market, price is not usually used as a competitive tool. If Katrina Candies reduces its price and other firms follow suit, the relative price change is smaller and demand would be inelastic. Cutting your prices when demand is inelastic will lead to a fall in revenue. It will leave little or no effect on market share. If a company raises the price, then it will lose market share to the others. If they lower the price, then the competitors will match the lower price. This will cause them to earn an even lower profit. The airline industry is a mix market and has a significant price war going on! Competing airlines agree to cooperate at certain routes and at same time, act as respective independent firm at some routes. Some airlines form alliances at some routes to take advantage of profitability and competitive advantage. At the same time, there are other airlines, like Southwest and Spirit, who chose not to exempt itself from certain operational strategies employed from other airlines. They are able to "stay in the game" by doing other things. For example Southwest doesn't charge baggage fees and Spirit offers a "Bare Fare". Spirit airline is perfect for anyone just trying to get from point A to point B. Their bare fare basically just gives you a spot on the plane. They do not have Wi-Fi and other luxuries that are offered on other flights, but I feel like they're have more room on their planes for leg room, etc and their customer service has always been awesome!