Game Theory Essay
In low pricing guarantee, each player is trying to make the most out of the deal. Often, the task is challenging as there exist multiple players. In all the cases, decisions are often taken while putting into account the decisions of the others and their subsequent actions (Taleizadeh et al. The situation is true more so in a free market often defined by the freedom of entry and exit by participants. Since competition requires an adoption of the most appropriate alternative course, there need be a good strategic approach applied while undertaking the decision while making the price. In the same situation, strategies to increase the pricing of given products could lead to counterproductive actions in the market and to the dominant players.
It thus denotes that a hike in pricing could lead the consumers to abscond the products. Consumer resistance of such a type is reflected in the opposition to buy products after the prices are increased. Reduced sales point to increased prices in the market (Manez, 2006). The situation clearly indicates that participants in the said industry could and are forced to take up the lowest pricing strategy available. Game theory is critical in pricing schemes and policies more so in oligopolistic sectors. In such a sector, enterprises come up with resolutions on increasing, reducing, or maintaining prices at a given point, unchanged. The demand curve in such a situation is known as kinked. The resulting situation gives an overview of price constancy in the sector (Chatterjee et al.
The situation is possible especially in a circumstance of enterprises increasing their prices and other players maintain their pricing with the final result showing a noticeable reduction in demand. Enterprises may never be conscious of other enterprises (Chatterjee et al. Alternatively, they may simply decide to disregard the responses of other players in the sector. In a typical example, in the oligopoly, an enterprise may cut its prices if it identifies that its strategies may not work to occasion an impact in the industry. However, in a monopolistic market, the strategy of a buyer could imply that pricing is wholly held by only one enterprise that also acts as the sole industry. According to Colombo (2015), the firm in such a situation may decide to make changes in its pricing but undertake it cautiously.
The situation established a bullwhip effect since the demands were exaggerated by the supplies thus lowering the distribution of products and manufacturing units increasing its costs. Although the move was invariably risky for the enterprise, it paid off with increased sales and market penetration in the long run (Chatterjee et al. However, it raised the question of how the consumers, retailers, and other producers respond to its strategy. For instance, would other payers deepen their offers such as discounts or would they shy away and pull from P&G initiative. Or could hey also move to a low steady price? In predicting other player’s response, P&G would need to put into consideration the other competitor’s principles on P&G as an entity (Mago and Pate 2009).
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