Market structure affects firms’ pricing decisions to a considerable extent. The competition degree determines an uct. The degree of freedom implies the limit to which the degree of freedom in determining the price of its product of a firm is free or independent in making their own pricing decisions from rival firms. Based on the market structure, the degree of competition varies between zero and one. And, in setting the value for your product does not vary between another one in contrast to a firm’s degree or a discretion of freedom competition degree. As, by rule, the higher the competition degree, the lower the degree of independence of the company in the pricing decision, the lower the degree of independence of the company and control its product price and vice versa, let’s now see how the competition degree affects pricing decisions of various types of market structures.
Under the full competition, a large number of companies compete against each other. Therefore, the degree of competition under the full competition is close to one. As a result, the firm’s discretion is negligible in determining the price of its product. It has to accept the price set by market demand and supply powers. If a firm uses his discretion to decide the price of his product above or below his market level, he loses his revenue and profit in any situation.
Because, if she sets the price of her product above the set price, she won’t be able to sell her product to the rate, and if she reduces the price from her market level, she won’t be able to cover her average cost. Therefore, in the full competitive market, companies have very little or no option in respect of pricing.
As the competition degree decreases, a firm’s control at the price and its discretion in the pricing decision increases. For example, under the monopolitry competition competition degree, where the companies have some discretion in determining the price of their products. Under the monopolitry competition, the degree of freedom largely depends on the number of firms and the level of product discrimination. Where the product differentiation is real, the firm’s discretion and control at the price is quite high and where it is only fantasy, the firm’s pricing decision is highly interrupted by rival products prices.
Pricing discretion increases control under alpropositions where the degree of competition is significantly lower, lower than the monopolitan competition. Therefore, companies have control over the price of their products and can use their discretion in pricing decisions, especially where product discrimination is major. However, a lower number of firms gives them the opportunity to make cartels or make some arrangements among themselves for pricing and non-value competition.
In case of monopolace, the degree of competition is close to zero. Multiple firm has considerable control over the price of its product. A monopolitan, in the true sense of the word, of course, under some barriers, such as any price for your product is free to decide, any price
(i) the purpose of the firm, and
(ii) Terms of demand.
The principle of pricing explains companies’ pricing decisions and pricing behaviours in a variety of market structures.