Objectives

1. To explain the significance of pricing, both in the economic system as a whole and from a management perspective.

2. To explain the context in which pricing decisions are and should be made.

3. To relate the concepts and analysis of the previous chapters to more complex and detailed pricing situations.

4. To explain the importance of the concept of competitive advantage.

5. To explain the concept of value creation and to show its significance in a purchasing model.

6. To explain the meaning of market positioning and its strategic implications.

7. To discuss market segmentation and targeting strategies.

8. To explain the meaning and uses of price discrimination.

9. To analyse pricing decisions for firms producing multiple products.

10. To analyse pricing decisions for firms producing joint products.

11. To explain the concept of transfer pricing and the issues involved.

12. To examine the dynamic aspects of pricing, by discussing pricing over the product life-cycle.

13. To consider other pricing strategies that firms tend to use in practice.

Introduction

Pricing is often treated as being the core of managerial economics. There is certainly a fair element of truth in this, since pricing brings together the theories of demand and costs that traditionally represent the main topics within the overall subject area. However, as indicated in various parts of this text, this can lead to an over-narrow view of what managerial economics is about. This chapter will continue to examine pricing in a broader context, but first it is helpful to consider the role of pricing in the economic system.