In the ideal case, the price formation is the result of the meeting of demand and supply, in which the Equilibrium quantity as well as the equilibrium price form. The pricing depends on the type of market.
It will be between pricing on one perfect market and differentiated between pricing in an imperfect market. There are three types of market in today's economy: monopoly, oligopoly and polypol.
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Price formation in a monopoly
When pricing in monopoly a sole monopolist can determine the price for the goods offered. But it can happen that the monopoly becomes too greedy. In this case, the price exceeds Cournot's point, which is the intersection of marginal costs and marginal revenue.
The consumers then possibly forego this good or they resort to another good. In general, a monopoly position is not desirable in the economy, since a monopoly usually has no competition. Thus, of course, there is no incentive to save costs and competition is disrupted.
Price formation in the oligopoly
In the Market form oligopoly There are few providers, but there are a lot of buyers. In contrast to the monopoly, there are several comrades-in-arms and thus there are different strategies for pricing.
For example, there may be a price drop. If one provider lowers its price, the other provider will follow suit (see Competitive pricing policy). For consumers, this has the positive effect that they can buy at a low price.
However, there is a risk that the providers will get into a financial bottleneck and, in the worst case, the oligopoly will develop into a monopoly in the long run.
Another strategy is price fixing among the providers (see cartel). Some companies can only survive when they reach a certain size. Then the competition can be pushed out of the market by aggressive behavior, to which they have to react by lowering the price. They talk to each other and then raise the price of a good together. For the consumer, this strategy is negative and it is also prohibited.
Pricing around Polypol
In most economies, the Market form of the polypole on. Here the price is formed by the constant interaction between demand and supply.
The best case occurs when the price matches the equilibrium price. A distinction is also made between imperfect and perfect competition. It is difficult or almost impossible for providers to influence the price because it is determined by the market.
Usually, the Polypol market form is very positive for the consumer.