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Discuss the Main Factors Affecting Product Pricing in the Uk

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Discuss the main factors affecting product pricing in the UK (1000 words)

Two surveys on the price-setting behaviour of UK firms published by the Bank of England in 1996 and 2008 concluded that the price, the amount of money expected, required or given for a certain level of output, was most often set as a result of market conditions. The same report however found that the second largest price differential was the objective of the specific firm surveyed, and thus product pricing in the UK can be seen to be determined primarily by the objectives of its firms, which are bounded by the differing market structures under which they operate. In the UK these dominant structures are monopolistic, oligopolistic and perfectly competitive, within which there are differing degrees of price setting ability and inter-firm competition, both of which influence the individual objectives the firms choose to pursue. As witnessed in recent years with the impact of the global recession however, all markets are vulnerable to external shocks to their product pricing.

The classical theory of the firm assumes that they will pursue the objective of profit maximisation. As Milton Friedman put it in his 1970 article, ‘‘There is one and only one social responsibility of business - to use its resources in activities designed to increase its profits so long as it... engages in open and free competition without deception or fraud’1. Within a profit-maximising objective, the price charged will still be constrained by the market structure, best demonstrated in the contrast between perfect competition and pure monopoly. Perfectly competitive markets, while argued by some to be unlikely to exist due to their strong assumptions of many individual buyers and sellers with freedom to enter and exit the market, have enjoyed an increasing share of the UK economy due to the popularity of e-commerce as...

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