Discussion- Econ 5050

Week 8

You have been hired to be a consultant on pricing strategies for two different companies. Both of the companies have similar customer bases in that their customers’ fall into two well defined groups: college students and young well-paid professionals. 


The first company is a trendy bar. The bar is currently seeing many young well-paid professionals as customers, but quite a bit fewer college students. The bar has run a marketing campaign to attract more college students, but that only caused a small increase in the
number of those customers. The second company is an electronics store selling items such as iPods. This company is also currently seeing many young well-paid professionals as customers, but quite a bit fewer college students. The electronics store has also run a marketing campaign to attract more college students, but that also only caused a small increase in the number of those customers. Both of these companies want to know if they could make some changes in their pricing strategy to increase their sales to college students and thereby increase their overall profits.

Prepare a recommendation for each company. Should your recommendations be the same for
both companies? If not, what are the differences?

The two companies, a trendy bar and an electronics store, are competing for two major groups of customers. The two groups of customers are young well-paid professionals and the other group is college students. These two customer groups typically have vastly different available cash for non-necessities. Well-paid young professionals will, theoretically, have more liquidity than a college student. An even more important factor affecting the ability of the two companies to attract additional customers is their market power.

Thomas and Maurice define market power as, ”the ability to raise price without losing all sales.” (425). The two companies clearly do not have strong market power, which is evidenced by their inability to attract and...