Competition-Driven Pricing

DEFINITION of 'Competition-Driven Pricing'

A method of pricing in which the seller makes a decision based on the prices of its competition. Competition-driven pricing focuses on determining a price that will achieve the most profitable market share and does not always mean the price is the same as the competition, it could be slightly lower. Research is done in an attempt to eliminate the competition and it is important to accurately interpret communication signals in order to prevent a price war.

BREAKING DOWN 'Competition-Driven Pricing'

Determining how to profitably achieve the greatest market share without incurring excessive costs requires strategic decision making. As such, the focus of the firm should not solely be on obtaining the largest market share, but in finding the appropriate combination of margin and market share that is most profitable in the long run.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Auction Market

    A market in which buyers enter competitive bids and sellers enter ...
  3. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it ...
  4. Competitive Intelligence

    The process of collecting and analyzing information about competitors’ ...
  5. Marginal Profit

    Marginal profit is the profit earned by a firm or individual ...
  6. Predatory Pricing

    The act of setting prices low in an attempt to eliminate the ...
Related Articles
  1. Active Trading

    Competitive Advantage Counts

    What's the best indicator of a company's future success? Its ability to succeed when others fail.
  2. Economics

    Economics Basics: Monopolies, Oligopolies and Perfect Competition

    Investopedia explains the various degrees of competitiveness in the marketplace: monopolies, oligopolies and perfect competition.
  3. Economics

    Understanding Imperfect Competition

    Imperfect competition appears in several different forms. Markets are evaluated by how they compare to, and try to approach, perfect competition.
  4. Investing

    Corporate Profits Fall, But They're Still Too High

    Corporate profits are falling--but is it because profits were too high in the first place?
  5. Personal Finance

    The Pros And Cons Of Price Wars

    Cheaper prices for the customer may seem great, but aggressive price cutting has a downside.
  6. Economics

    Perfect Competition

    Perfect competition is an economic idea that does not exist in the real world but can be used as a standard to measure the efficiency and effectiveness of real world markets.
  7. Active Trading

    Don't Let Stock Prices Fool You

    Find out why a stock with a six-figure share price can still be a good value.
  8. Economics

    How Can Companies Increase Market Share?

    Companies that increase their market share enjoy a competitive advantage. They receive better prices from suppliers, and they’re able to produce goods faster.
  9. Trading Strategies

    Does Your Personality Match Your Trading Methods?

    Investing has ways to successfully accommodate a variety of personalities. Learn how to align your trading with your traits.
  10. Investing Basics

    The Highest Priced Stocks In America

    These stocks don't come without a hefty price tag. But are they worth it?
RELATED FAQS
  1. How do I determine my company's competitive advantage?

    Find out how to determine if your company has a competitive advantage and, if so, learn how to figure out how to make it ... Read Answer >>
  2. What is the difference between CI (competitive intelligence) and competitive analysis?

    Understand the difference between competitive intelligence and competitive analysis. Learn why a company conducts both types ... Read Answer >>
  3. What parameters are required for a market to exhibit perfect competition?

    Learn what parameters are required for a market to exhibit perfect competition and how perfect competition is more of a theory ... Read Answer >>
  4. Why are there no profits in a perfectly competitive market?

    See why economic profits are theoretically impossible in a perfectly competitive market and why some economists use perfect ... Read Answer >>
  5. How does short selling help the market and investors?

    Find out how short sellers provide a service to the market by acting as a check against overvalued companies and exposing ... Read Answer >>
  6. What is the difference between profitability and profit?

    Calculating company profit and profitability are not one and the same, and investors should understand the difference between ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center