Pricing strategy varies significantly across different market structures. The pricing guidelines in a monopoly market are relatively straightforward. Since the company is the only producer offering the product, it can mark-up the price as far as the customer can bear. The pricing strategies for a producer operating in a perfect competition structure are also fairly intuitive. They are price takers, and hence price is set at the marginal cost of the product. This is due to the fact that there are many firms offering nearly identical products. However, there is optimal pricing for the market structures offering differentiated products with many competitors (oligopoly) or a few producers (monopolistic competition). These are much more complex and involved. It has been stated that differentiation in products that creates differences in customer valuation is the most prevalent type of competition. In such markets pricing strategies may include the three Cs of cost, competition, and customer.
Develop a paper detailing an analysis of market structures and relating pricing strategies that are suitable for each of these structures. Furthermore, include a real world example of pricing strategy for a specific company by identifying its market structure.
Watch the Jelly Belly Candy Company Virtual Plant Tour at the link provided in Module 3. After watching the series of videos, respond to the following:
For the various flavors of products, would the company be more likely to use job or process costing? Rationalize your response.
For the basis of overhead allocation, would the company be more likely to use a machine- or labor-based driver? Rationalize your response.
Assume that overhead is underallocated by 6% for the period. Would the company be more likely to expense or capitalize this adjustment?
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