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. Price War

    When companies continuously lower prices to undercut the competition. ...
  2. Perfect Competition

    A market structure in which the following five criteria are met: ...
  3. Monopolistic Competition

    Characterizes an industry in which many firms market products ...
  4. Average Up

    The process of buying additional shares at higher prices. This ...
  5. Competitive Intelligence

    The process of collecting and analyzing information about competitors’ ...
  6. Market Share

    The percentage of an industry or market's total sales that is ...
Related Articles
  1. Retirement

    How To Profit During High Inflation

    Some companies are better than others at pivoting their strategies to overcome inflation or other cost-increasing concerns. The best companies can push cost increases out to the market quickly ...
  2. Trading

    Competitive Advantage Counts

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

    Economics Basics: Monopolies, Oligopolies and Perfect Competition

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

    Understanding Imperfect Competition

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

    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. Investing

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  8. Markets

    Understanding Monopolistic Competition

    Monopolistic competition exists in industries that have many firms offering similar products or services: for example, restaurants, supermarkets and clothing stores.
  9. Investing

    The Highest Priced Stocks In America

    These stocks don't come without a hefty price tag. But are they worth it?
  10. Trading

    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.
RELATED FAQS
  1. What factors influence competition in microeconomics?

    Find out what influences competition in microeconomics and how perfect competition, monopoly and oligopoly vary in their ... 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 do the price of shares of a corporation fluctuate?

    Shouldn't the price of a share be a mathematical equation? Without getting too complicated with the accounts that are within ... Read Answer >>
  5. What strategies do companies employ to increase market share?

    Learn how companies use innovation, customer retention tactics, smart hiring practices and timely acquisitions to increase ... Read Answer >>
  6. If I believe retail sector companies are overvalued how can I profit from a fall ...

    Examine the various trading strategies that can be employed by an investor who anticipates a decline in stock prices in the ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center