CALIFORNIA STATE UNIVERSITY, MONTEREY BAY MARKETING – BUS-626 EXCEL PRICING TOOL CALIFORNIA STATE UNIVERSITY, MONTEREY BAY MARKETING – BUS-626

MARKET STRUCTURE FEATURES PURE MONOPOLISTIC CHARACTERISTICS COMPETITION COMPETITION OLIGOPOLY MONOPOLY NUMBER OF MANY FEW TO MANY FEW NO DIRECT COMPETITORS COMPETITORS EASE OF ENTRY EASY SOMEWHAT DIFFICULT GOVERNMENT INTO INDUSTRY DIFFICULT REGULATED SIMILARITY OF SIMILAR DIFFERENT SIMILAR OR NO DIRECTLY COMPETITORS’ DIFFERENT COMPETING PRODUCTS PRODUCTS INDIVIDUAL FIRM’S NONE SOME SOME CONSIDERABLE CONTROL OVER PRICE INDIVIDUAL FIRM ‘S TOTALLY ELASTIC OR KINKED; BOTH ELASTIC OR DEMAND CURVE ELASTIC INELASTIC ELASTIC AND INELASTIC INELASTIC

PRICE AND NONPRICE DEMAND PRICE COMPETITION P1 P2 PRICE NONPRICE COMPETITION Q1 Q2 QUANTITY P1 P2 DIFFERENTIATED PRODUCT PRICE UNDIFFERENTIATED PRODUCT Q1 Q2 QUANTITY SOURCE: EVANS AND BERMAN, 1992

PRICE ELASTICITY P2 P1 PRICE Q2 Q1 QUANTITY (Q1 - Q2) / [(Q1 + Q2) / 2] E = (P1 - P2) / [(P1 + P2) / 2] E = NEGATIVE DUE TO (P1 - P2) < 0; THEREFORE USE ABSOLUTE VALUE

ELASTICITY EXAMPLE 30 24 21 15 ELASTIC UNITARY PRICE INELASTIC ELASTIC UNITARY PRICE INELASTIC 0 5 7 8 10 QUANTITY ONE DOWNWARD SLOPING, LINEAR DEMAND CURVE MAY HAVE ELASTIC, INELASTIC AND UNITARY ELASTICITY POINTS / ARCS. ELASTIC: UNITARY: INELASTIC: (7 - 5) / (7 + 5) (8 - 7) / (8 + 7) (10 - 8) / (10 + 8) E = E = E = (24 - 30) / (24 + 30) (21 - 24) / (21 + 24) (15 - 21) / (15 + 21) E = - 1.5 E = -1 E = - 0.6666 |E| > 1 |E| = 1 |E| < 1