Oligopoly and Employee Discount Pricing

Oligopoly is a type of market where few firms producing homogeneous or differentiated products dominate. The companies can be local, national, or international, and pricing power is one of their main characteristics. An oligopolistic producer considers the way others in the same industry will react to price changes. Indeed, the few companies producing a particular product are mutually interdependent and their strategic decisions determine output as well as pricing (Rittenberg, 2012). Oligopolies make standardized and differentiated products to prevent new entrants and maintain their competitiveness in the market. They set higher standards, including prices of scarce raw materials such as copper and steel, to ensure competitors cannot manufacture similar products. The strategy also allows oligopolistic firms to maintain their customers due to differentiated goods, and switching to another company does not make any difference. These organizations distinguish their services or products from those of rivals, thus enhancing their attractiveness to target markets. The approach helps oligopolies to establish a position seen by potential customers as unique. The market appeal helps to reduce competition because the perceived difference makes some consumers value a particular firm’s products more than others.

Employee discount pricing is one of the marketing strategies adopted by oligopolistic firms. The General Motors Corporation (GMC) introduced the approach in 2005 (Rittenberg, 2012). Employee discount pricing helps attract and maintain skilled workers and expand the product’s market, improving firms’ competitiveness. Equally, it reduces the prices of products manufactured by oligopolies and bars new entrants from joining the market. For instance, when GMC adopted the strategy, its rivals in the automobile industry, such as Toyota and Ford, did the same to their workers and customers. Apple Inc. is another example that uses the tactic where its workers are eligible for a 25 % discount on computers (Kramer, 2017). Undeniably, the policy is beneficial to companies and customers.

References

Kramer, J. (2017). 10 Companies with huge employee discounts. Glassdoor. Web.

Rittenberg, L. (2012). Principles of microeconomics. Flat World Knowledge.

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