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    Monopoly pricing

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    A. Monopoly pricing


    A firm that produces a product or service with few or no substitute products or services. The company that has absolute control over the price in the market is considered a monopoly. An example would be Railways in India.

    Hence monopoly is commonly characterized by control of information or production technology not available to others. This specialized information often comes in the form of legally-established patents, copyrights, or trademarks. While these create legal barriers to entry they also indicate that information is not perfectly shared by all. The AT&T telephone monopoly of the late 1800s and early 1900s was largely due to the telephone patent. Pharmaceutical companies, like the hypothetical Feet-First Pharmaceutical, regularly monopolize the market for a specific drug by virtue of a patent.

    Monopoly has extensive (boarding on complete) market control. Monopoly controls the selling side of the market. In many situations the competitive market model may not work. In these cases a monopoly has welfare effect. For example, patent is a monopoly right granted by the government. Many inventions, like new drugs, are provided by monopolies. Thus granting patents, licenses or regulations reduces market power.

    Cost advantages that create monopolies:

    1. Exclusive access to key material (DeBeers diamond monopoly). DeBeers own 2/3 of world's diamond mines and it is considered the diamond monopoly because it has a great market power to influence price.

    2. Business secret: the formula of Coke, better technology.

    3. Natural monopoly: The market favors one big firm because large-scale production reduces cost - economies of scale within the relevant range. Hence the joint operating agreement between the two newspapers will creates an alliance with robust, high-quality network assets, and complementary expertise and capabilities

    Maximizing the combined scale and ...

    Solution Summary

    This explains the concept of dynamic pricing.