Why and how can a firm's pricing strategy vary among countries?
- Price discrimination
Exists when consumers in different countries are charged different prices for the same product or slightly different versions of it. In order for this to function, two conditions must be fulfilled:
→ Separate markets, to avoid arbitrage.
→ Different price elasticity of demand in different countries.
- Strategic pricing
Predatory pricing
The use of price as a competitive weapon to drive weaker competitors out of a national market. Once competition is eliminated, firm can raise prices and enjoy high profits. Firm must normally have a profitable position in another national market so it can subsidize the aggressive pricing.
Multipoint pricing strategy
Refers to the fact that a firm's pricing strategy in one market may have an impact on its rival's pricing strategy in another market. Aggressive pricing in one market may elicit a response from rivals in another market. Also, two firms in the same market can start price wars to try and gain market dominance.
Experience curve pricing
As a firm builds its accumulated production volume over time, unit costs fall due to experience effects. Aggressive pricing can build accumulated sales volume rapidly and thus move production down the experience curve. Further down the curve → cost advantages.
Firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in an attempt to build global sales volume as rapidly as possible.
- Regulatory influences on prices
Antidumping regulations
Dumping occurs when a firm sells a product for a (fair) price that is less than the cost of producing it. Both predatory pricing and experience curve pricing can run afoul of anti-dumping regulations.
Competition policy
Most developed nations have regulations designed to promote competition and to restrict monopoly practices. These regulations can be used to limit the prices a firm can charge in a given country.