Common Pricing A

Common Pricing A

Common Pricing, (a) fixing identical prices by agreement between competing lines selling through wholesale and retail channels, or (b) contracting by several firms for single projects such as a bridge or power-station ('level tendering'). The economic implications may be different in the two cases.

In the first the alternative is not usually active price competition. Price agreements are most easily reached when there are only a few competitors in 'oligopolistic' markets. Price competition is then unstable: a price reduction by one firm which others did not meet would have a marked effect on their sales. A price cut may thus start a price 'war. To avoid it firms are likely to hold prices at a level thought 'reasonable'. Prices fixed by agreement are presumed higher than they otherwise would be, although this is only a probability. In inflationary periods agreed prices may be adjusted upwards more slowly than competitive prices because of delays in negotiations. But the resulting waiting lists may be no more desirable for consumers than the exclusion by higher prices of would-be buyers.

The identical prices tendered for single projects may depart more clearly from what would be expected in the absence of common pricing. Economists would expect that firms tendering for 'bespoke' work would be differently placed for fulfilling particular contracts so that their prices would differ if there were no price agreements. The common price is therefore likely to be higher than would yield normal profits to some of the firms.

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