EconAir

  CONTENTIONS Pricing is a strategy, not something a company accepts or beyond its control. Price discrimination is one pricing  strategy. Price discrimination can be practice by individual companies or all companies in an industry. The relative effectiveness of competing companies' price discrimination depends partly on the proprietary (private to the company) information each company has. Price discrimination, in combination with loyalty programs or product line extension, can increase market share. The more proprietary information a company has, the more effective is price discrimination. The more information about individual buying behavior, the more effective is personalized price discrimination.     INTRODUCTION – COMPANIES WITH “MARKET POWER”   The focus of this essay is on corporations that sell products or services to final consumers. A common strategy is price discrimination.   Retailing is somewhat different than most market transactions. Retaile...

INTRODUCTION This blog was prompted by an article in the Sunday New York Times   Business Section of April 14 titled, “Sometimes We Want Prices to Fool Us.”   The article is about the J. C. Penny’s merchandising disaster. HAGGLING In 2012, J. C. Penney’s sales dropped 25% compared to 2011.   Over two years ago, Penny’s brought in Ron Johnson from Apple Stores to turn the company around.   Mr. Johnson eliminated sales and coupons and promised shoppers “everyday low prices,” Walmart’s slogan.   This saved huge amount of money on inventory and advertising costs and smoothed out cash flow.   Great strategy.   Penny is near bankruptcy.   Ron Johnson has been fired and sales supplements are reappearing in my newspaper. Simple economic theory assumes one equilibrium price.   Each potential consumer compares his/her expected “pleasure” from buying the product to the cost (price) of the product, and then decides whether or not ...