What is the monopoly pricing strategy

Pricing in Monopoly & Oligopoly, Polypol


Probably determining factors in terms of pricing are supply and demand. But in today's economy there are several different types of market, not only in Germany, which must be assessed completely differently. The following three forms of market play a very decisive role in the national economy: monopoly, oligopoly and polypol.

The pricing of certain goods is not always the same. The decisive factor is primarily the type of market in question. After all, it is logical that the structure of the price in the case of a monopoly looks significantly different than if “only” an oligopoly or polypole is present.

Pricing in a monopoly

The special thing about the Pricing in a monopoly is that a sole monopoly is often responsible for setting prices. He can pretty much alone determine how high the price should be for his offered good.



But if a monopoly becomes too greedy and the price exceeds the so-called Cournot's point (the intersection of marginal revenue and marginal costs), buyers begin to restrict themselves and sometimes forego the goods. In addition, there is the possibility for consumers to use replacement goods.

As a last option, there is also government intervention. In principle, a monopoly position in an economy is of course undesirable. After all, a monopolist usually has no competition and there is no incentive to cut costs.

Price formation in the oligopoly

The situation is somewhat less dramatic in the case of oligopoly as a market form. Here there are few providers and many buyers. Since there are several competitors in the oligopoly, different pricing strategies are used.


One strategy is direct competition through price reductions. If provider A lowers the price and provider B follows suit, what is known as ruinous competition arises. For the customer, this pricing naturally offers the advantage that they can always benefit from a favorable price. However, the providers run the risk of running into financial bottlenecks. In the worst case, such an oligopoly will develop into a monopoly over time.



Another mostly illegal strategy is price fixing. The competitors agree on this and raise the price together. This is of course very disadvantageous for the consumer and is of course prohibited.

Pricing around Polypol

The market form of the Polypols is arguably the most common in most economies. In the case of a polypole, the price is formed by the constant interaction between supply and demand. In the ideal case, the price levels off at the equilibrium price. A basic distinction is made between perfect and imperfect competition in the market form of the polypole. For the consumer, this type of market is usually only beneficial.

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The article "Pricing" is in the category: The market