A. Strategic Pricing

A pricing strategy is a mechanism used by firms with regard to charging prices on their goods and services. The pricing strategy depends on the type of market structure in which the firm operates. Under a perfectly competitive market, pricing is determined by market demand and supply and is set where it equals marginal cost. Pricing under oligopolistic firms depends on the competition these firms are facing. They may compete over price, quantity, or set the prices similar to that of a perfectly competitive firm. Pricing under the monopoly market is relatively simple. Firms charge prices greater than their marginal cost to generate higher income in the market.

B. Price Discrimination

Price discrimination is a pricing strategy used by a firm with market power. A monopolist can practice price discrimination by selling the same product to different consumers at different prices. In theory, this pricing strategy can be classified into three categories: first-degree discrimination, second-degree price discrimination, and third-degree price discrimination.

The first degree or perfect price discrimination is the situation where the firm trades the same good at different prices based on the consumer's maximum willingness to pay for the good. It is called perfect price discrimination because the monopolist exhausts all the consumer surplus in this market. The second-degree price discrimination or non-linear pricing is the case where the firm charges different prices to all consumers at different quantities that are purchased. Under this pricing, the firms can offer quantity or volume discounts. Third-degree price discrimination is the scenario where the firm charges different prices to different consumers. This is possible since the firm can identify the observable characteristics that consumers demonstrate, which allows the firm to segment the market. Some examples of this pricing strategy are offering student discounts, senior citizens discounts, employee discounts, etc.

C. Monopoly

A monopoly is a market structure where there is a single seller of a particular good in the industry. A profit-maximizing monopolist charges a price higher than its marginal cost and produces a quantity level, such as the marginal cost is equal to marginal revenue. Since market power exists in this industry, barriers to entry are extremely high; therefore, entry into the industry is blocked. Compared to the competitive firm, the monopolist sets the price above the marginal cost resulting in a reduction of welfare in the society.