Market Model and Pricing Strategies Analysis
Description of the business, its general pattern of change of market models and how such a change impacts its business operations
AT&T is a renowned corporation that was initiated with an objective of providing quality telecommunication services to customers. Since its inception, the company that started its operations in a monopolistic business environment has been recording exemplary performance (Costello 1). The exemplary performance is attributable to its effective operating policies, market model, quality of products and fair pricing.
Notably, the company operated under a monopoly market model before changing to oligopolistic model. The change to oligopolistic model was prompted after the unpredicted entry of new companies in the market. The companies that are its main rivals include Verizon, sprint and T-mobile.
Their entry made the company to change its mode of operations and pricing strategies since it no longer operated as a single service provider (Costello 1). The change in the model of operation has made the company to loose its sole determination capacity of trade practices and pricing guidelines.
Due to this, the company has now lost its monopoly power of setting prices and determination of quality standards of products (Kirzner 263). Presently, it has to consider the actions of its rivals in various aspects that include product quality and pricing of services or products before making any decisions.
Hypothesis of the basic short-run and long-run behaviors of the model in the business
Hypothetically, both monopoly and oligopoly market models affects market economies in diverse ways (McGuigan, Moyer and Harris 5). For instance, the oligopolistic market model that the company is currently operating under provides the company and other players in the sector exclusive powers to set product prices.
The cartel like model ensures that the few market players operate under a cartel to eliminate competition (Kirzner 263). It presents various short and long term benefits. Firstly, it enables companies to set prices effectively, set stringent barriers to entry into the market to discourage more newcomers and enjoy long run proceeds.
Oligopoly model also enable companies to avert unhealthy competition, set favorable terms of work, product quality standard and profit maximization conditions. The model is bound to enable AT&T Company and other players to benefit immensely from economies of scale and large market share (Fingas 1).
Major factors that affect the degree of competitiveness in your business
Based on the performance data presented, the oligopoly market model aspects have enabled the company to progress well especially after the entry of new service providers in the market. This is shown clearly since the company’s key performance measures that include productivity, quality and market share indicate positive growth rates.
For instance, the company’s performance levels is at 6% higher than its two main rivals whose performance levels stands at 32% respectively. Rationally, the performance levels shows that the industry is evolving positively under oligopolistic market conditions and the companies will continue to benefit from restrictive trade practices (Fingas 1).
Key measures of performance analyzed, shows that the industry is evolving. Particularly, productivity measure shows that the company’s production capacity has not recorded a drastic reduction despite the availability of the new entrants.
Its productivity level is at 65% as compared to its rivals while its market share and quality levels stands at 60% and 75% respectively. This is apparent since the availability of new entrants into the market has not affected performance level of the company in a great way (McGuigan, Moyer and Harris 9).
The pricing strategy of two main rivals of the company and how knowledge of this information may influence pricing decisions in your business
The company’s close competitors that include Verizon and sprint uses demand and supply based pricing strategy due to its effectiveness in ensuring that loses are not made. The strategy has enabled the two companies to levy prices that are favorable on their services and products (Kirzner 272).
This enabled them to compete effectively with AT&T Company that applied activity based pricing strategy especially when they started their operations. The strategy adopted by the companies is effective compared to AT&Ts activity based price strategy.
As evident the company should consider adopting demand and supply based pricing strategy due to its flexibility. The rationale for adopting this strategy is because it fosters fairness by averting overexploitation of customers.
The best pricing policy for the business
Imperatively, AT&T Company should consider adopting supply and demand based pricing strategy. The pricing strategy is recommended for the company due to its flexibility and capacity to foster fairness. The strategy will enable the company to set prices that are proportionate to the cost of production. It is also bound to caution customers from being overexploited by greedy service providers.
Similarly, the strategy will enable the company to maximize its profits through price floor and price ceiling strategies (Kirzner 273). This is apparent given that it enables companies to benefit from economies of scale when supply and demand is high and favorable prices when supply is low.
Rationally, the strategy will enable the company to benefit from economies of scale by attracting more sales and customers as evident in its rival companies. The rational of the strategy is that it fosters fairness through systematic pricing system since prices are set based on the market forces (McGuigan, Moyer and Harris 12).
Works Cited
Costello, Sam. Verizon vs AT&T vs T-Mobile vs Sprint: Which to Choose For iPhone. 2013. Web.
Fingas, Jon. AT&T lowers Next device pricing, just happens to trump Verizon T-Mobile 2013. Web.
Kirzner, Israel. Market Theory and the Price System. Auburn, Ala: Ludwig von Mises Institut, 2007. Print.
McGuigan, James, Moyer, Ricahrd and Harris, Frederick. Study Guide Managerial Economics: Applications, Strategy, and Tactics. United States: South-Western Thkomson Learning, 2002. Print.