Abstract
It is fairly obvious that a high price for a product tends to discourage a large portion of the market. Likewise, a low price typically encourages a large portion of the market to buy more of the product. It follows then that a high price tends to limit the potential market for a product, while a low price tends to expand the market. The quantity of any commodity that is produced and exchanged, and the price at which it sells, are determined primarily by conditions in the particular market for a product/service, given minimum quality differentiation between competing brands. In a competitive market, the principal forces that determine the price charged and the quantity produced and sold are contained in the prevailing conditions of supply and demand. The less competitive the market, the less the interaction of supply and demand.
Few rational people would argue that there is not an affordability problem in the auto industry.
It’s not sticker shock. Consumers aren’t saying ‘I won’t buy’, they’re saying ‘I can’t buy’.
Something must be done. As factories prepare final 1994-model prices, they must face tough questions:
Why isn’t there a new car priced for the millions of Americans who now simply cannot afford to buy?
Time has proved that rebates aren’t the answer to the price problem. Specially equipped cars at an attractive and well-advertised price are popular, but they decimate the dealer discount and place a sometimes unrealistic limit on the dealer’s profit potential.
And widespread tampering with the dealer discount strikes terror in the heart of even the toughest manufacturer. But why can’t factories solve the pricing dilemma?
(Kevin E. Crain, ‘Opinion’, Automotive News, 5 July 1993, p. 12)
This is a preview of subscription content, log in via an institution.
Preview
Unable to display preview. Download preview PDF.
References
Peter Reid Dickson ‘Toward a General Theory of Competitive Rationality’, Journal of Marketing, vol. 56 (January 1992) pp. 69–83.
Israel M. Kirzner Competition and Entrepreneurship (Chicago: University of Chicago Press, 1978).
Author information
Authors and Affiliations
Copyright information
© 1995 Nessim Hanna and H. Robert Dodge
About this chapter
Cite this chapter
Hanna, N., Dodge, H.R. (1995). Pricing from the Standpoint of Economic Theory. In: Pricing. Palgrave, London. https://doi.org/10.1007/978-1-349-14477-8_3
Download citation
DOI: https://doi.org/10.1007/978-1-349-14477-8_3
Publisher Name: Palgrave, London
Print ISBN: 978-0-333-69413-8
Online ISBN: 978-1-349-14477-8
eBook Packages: Palgrave Business & Management CollectionBusiness and Management (R0)