Explanation Prices are influenced by various factors and one of them is competition. Every business analyzes the competitive environment which involves the competitors of the firm. The more the competitors in the market, the lesser will be the price of the product. Hence, one can say that competition among sellers benefits the final consumers. A firm’s competitiveness is affected by factors like- number of competitors, size and nature of the firm, profitability of the firm,etc. For example: A consumer “P” wants to buy a pair of shoes. ‘P’ goes to a shop and likes a pair very much, ‘P’ asks the price which is $1500. ‘P’ thinks of exploring some other shops in the market in a hope that the product will be available somewhere at a better price. ‘P’ goes to 3-4 shops and then finally finds the exact pair of shoes in a small shop for $1200. Although the quality is not exactly the same but is worth purchasing. ‘P’ immediately buys the one available at $1200. This example shows the behavior of a rational consumer. Firms are very well aware of this behavior and therefore, before fixing the price of the product, the firms look at what the competitors are charging and what are the pricing strategies. If the competitor is offering additional discounts, the firm is most likely to sell the products at discounted rates. This is how competition influences the prices. Influence of government regulation and consumer trends on prices . The government can put several restrictions in the form of tax rates, minimum wage rate, safety of the workforce, environmental protection, etc. on a firm. It is mandatory for the firms to follow such regulations otherwise dire consequences might have to be faced. For example: If the government has announced minimum wage rate policy for the labourers it would probably increase the expenses of the firm. Consequently, the firm may raise the prices of the product to cover that extra cost and maintain the profits...

10th Edition

ISBN: 9780135209783

Author: Stuart

Publisher: YUZU

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Chapter 10, Problem 7QA

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To explain: The influence of competitive environment, government regulation and consumer trends on prices. Influence of global environment on pricing strategies.

Introduction:Global environment involves all the micro and macro factors present in the environment in which the company is operating which can have a substantial effect on operations of a firm. It involves international components also.

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Solution Summary: The author explains the influence of competitive environment, government regulation, and consumer trends on prices.

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