Subscribe:

Ads 468x60px

Going rate pricing and Sealed bid pricing

(i) Going rate pricing: It is a competitive pricing method under which a firm tries to keep its price at the average level charged by the industry. The use of such a practice of pricing is specially useful where it is difficult to measure costs. Adoption of going rate pricing will not only yield fair return but would be least disruptive for industry’s harmony.

Going rate pricing primarily characterizes pricing practice in homogeneous product markets, The concern selling a homogeneous product in a highly competitive market has actually very little choice about the setting of its price. There is apt to be a market determined price for the product, which is not established by any single firm or clique of firms but through the collective interaction of buyers and sellers. The concern which is going to charge more than the going rate would attract virtually no customers. The concern should not charge less because it can dispose of its entire output at the going rate. 

Thus, under highly competitive conditions in a homogeneous product market (such as food, raw materials and textiles) the concern really has no pricing decision to make. The major challenge before such a concern is good cost control. Since promotion and personnel selling are not in the picture, the major marketing costs arise in physical distribution.

In pure oligopoly, where a few large concerns dominate the industry, the concern also tends to charge the same price as is being charged by its competitors. Since there are only a few concerns, each firm is quite aware of others’ prices, and so are the buyers. This does not mean that the going price in an oligopoly market will be in practice indefinitely. It cannot, since industry costs and demand change over time.

(ii) Sealed bid-pricing: Competitive pricing also dominates in those situations where firms compete on the basis of bids, such as original equipment manufacture and defence contract work. The bid is the firms offer price, and it is a prime example of pricing based on expectations of how competitors will price rather than on a rigid relation based on the concern’s own costs or demand. 

The objective of the firm in the bidding situation is to get the contract, and this means that it hopes to set its price lower than that set by any of the other bidding firms. But however the firm does not ordinarily set its price below a certain level. Even when it is anxious to get a contract in order to keep the plant busy, it can not quote price below marginal cost. On the other hand, if it raises its price above marginal cost, it increases its potential profit but reduces its chance of getting the contract.
Related Posts Plugin for WordPress, Blogger...