Imagine yourself a manager for a football team. You can use either a traditional system of pricing the season tickets (4-5 different price levels based on the location of the seats) or, use an auction and sell the tickets to the top 50,000 (assuming that this is the seat capacity) bidders. This a very popular team and the games are always sold out with many more fans trying desperately to acquire tickets through scalpers. Which method would you use and why? What would be the advantages and disadvantages of each method?
In most markets brands are sold at whatever price the company thinks will maximize their profits.
However, there are some cases that are more complex. What should be the proper price for a life-saving drug? Should the price be regulated, or should the pharmaceutical company that spent hundreds of millions of dollars in developing it charge whatever it wants, even if not all patients will be able to afford it at the company’s price?