Market structure

 

BORROWING MONEY

 

Most people who have a problem with cash flow phone the bank and ask for an overdraft. It is quick and easy, but it is not always cheap. Lloyds Bank, for example, is currently charging 18.8% per year plus a monthly fee of £8.

Instead of an overdraft, why not arrange a personal loan? An overdraft is really a short-term measure for one or two months, but a personal loan is often a better idea because the repayments are structured over a pre-arranged period. Lloyds Bank charges customers an annual percentage rate of 16.7% on a £1,000 loan over 12 months.

If you see something you want in the shops, there is usually not time to ask your bank for loan, so you can use a credit card. Buying on credit is expensive, but there are some good offers. The favourite at the moment is the Save and Prosper card, with an APR (annualized percentage rate) of 13.9%.

Customers with incomes of more than £25,000 can benefit from gold charge cards. These are not credit cards, but payment cards for shops and restaurants, etc. They are useful if you want a large sum of money quickly, but the amount you borrow must be repaid at a prearranged date. The annual cost of the Midland Gold service is £70.

Store cards are generally more expensive than other credit cards, and can only be used in the shops which offer them. Marks and Spencer customers currently pay an APR of 22.4%.

 

PRICING POLICY

Essential Vocabulary

additional cost – дополнительная стоимость

allow for v – предусматривать; учитывать; принимать во внимание

average cost – средняя стоимость

brand loyalty – приверженность потребителя к данной марке товара

charge a price – назначить цену

competitive pricing – конкурентное ценообразование

cost-plus pricing – ценообразование по принципу «затраты плюс прибыль»

deter –удерживать, не допускать

drive out – вытеснять

dumping pricing – демпинговые цены

establish a market share – завоевать место на рынке

estimate v – оценивать, устанавливать цену

limit-pricing – ограничение цен, введение предельной цены

loss leader pricing – тактика занижения цены

make an estimate – производить оценку, составлять смету

marginal costs – предельные издержки производства, предельно высокая себестоимость

marginal-cost pricing – ценообразование на основе предельно высоких затрат

mark-up – наценка

non-price – неценовой

non-price competition – неценовая конкуренция

penetration pricing – тактика входящей цены

predatory pricing – хищническое ценообразование

price discrimination – разброс цен, ценовая дискриминация

price plateau – соотношение цен

pricing – ценообразование

pricing method – метод ценообразования

pricing policy – политика ценообразования, политика цен

set the price – устанавливать цены

skim the top end - «снять пенку» на максимальной точке

skimming price – ценообразование по методу снятия сливок

standard price – единая цена

 

Price is a very important weapon that can be used to persuade consumers to buy. Price is one of many factors that determine the demand for a product.

How firms set the price of their goods and services is a complicated issue. A number of factors will affect the price a firm sets for its product, including such things as the cost of producing the product, the rival firms' prices, the type of product and the desired market share of the company.

Pricing Methods

The most common pricing methods adopted by firms are:

1. Cost-plus pricing is a very simple pricing method and is perhaps the most common. A firm may calculate its average costs of producing a product and then simply add a profit 'mark-up', say 10%, on to average costs. This mark-up could be changed to allow for the effects of competition and economic conditions, e.g. where there is a lot of competition this mark-up may be lowered or when business is good the markup could be raised.
2. Marginal-cost pricing differs from the above in that the firm looks not at its average costs but at marginal costs, i.e. the firm calculates the additional cost of producing the next unit onset of units of output and the firm charges a price (plus а 'mark-up') according to the marginal cost, A typical example is found in the shoe repair business. There appear to be no standard prices for repairing shoes. What tends to happen is that the cobbler examines the shoes and makes a quick estimate of how much material and time it will take to repair them. Larger shoes, those made of leather and those in greater disrepair have a higher marginal cost and therefore a higher price is charged for their repair.

3. Price discrimination: several firms are able to charge different prices for a similar product. This is known as price discrimination. British Rail (BR), for example, charges different consumers such as businessmen and women, children, senior citizens and students different prices and also charges different prices according to the time of the journey, e.g. peak, off-peak, weekly and weekend. British Telephones (ВТ) price discriminates according to the time of day, week and distance of the call. The price charged to the consumer is made up of two elements: a fixed charge or quarterly rental, which is designed to cover BT's fixed costs, and a variable charge related to the use of the phone. The ability of a firm to price discriminates on whether it can split or segment its market. In the case of ВТ and BR this is quite straightforward. Other industries and firms also price discriminate, e.g. the breweries charge different prices in the different regions of the country, cinemas offer cheap tickets for afternoon and late shows, and the Electricity Boards operate an Economy 7 system where consumers pay less for nighttime electricity.

Pricing Strategies

In addition to adopting particular pricing method, a firm can also follow a number of pricing strategies or tactics. The more common of these include:

Penetration pricing is a tactic adopted by a company when it is first entering (or penetrating) a market and is trying to establish a market share. It tends to be used where there is very little or no consumer 'brand loyalty' and the demand for the goods is price elastic.

Skimming price is where a firm charges a high price for a product in order to 'skim' the 'top end' of the market. It is most likely to be found where the product is new and consumers have not had a chance to establish a 'price plateau'. This refers to the price that consumers expect to pay for a product, e.g. would anybody expect to pay 40p for a standard size Mars bar? Clearly this would be above the price plateau. When products are new, a price plateau has not had the chance to be established and some consumers are willing to pay a high price to buy the new product because of its novelty value.

Loss leader pricing is when firms offer prices below the cost of producing the item (hence making a loss) in order to encourage the sale of the products. Supermarkets frequently adopt this tactic to entourage people into the stores so that once inside they may buy additional items on impulse.

Limit-pricing occurs when a firm, which normally has a large market share, drops the price of its product to limit or deter the entry of other new competitors. The success of this strategy depends on the size of the price drop, the potential profits to be gained by new firms, and the determination of other firms to enter the industry.

Predatory pricing typically occurs when a firm holds the price of its product below those of its rivals for long periods of time in the hope of driving them out of the industry and establishing a monopoly position.

Dumping pricing happens when a firm 'dumps' its goods into a market at below the cost of producing them in the hope that it can establish a foothold in the market. Once a market has been established the price of the product may rise to those of competitor firms.

Competitive pricing is when the firm prices its product in line with those of its competitors. There is little price variation between the types of goods being sold. In this situation there may be a substantial amount of 'non-price' competition, e.g. on packaging and design of the product.

 

Translate the following word combinations or find Russian equivalents.

1. the cost of producing the product
2. the rival firms prices
3. the desired market share of the company
4. pricing strategy
5. to establish a 'price plateau'
6. to establish a monopoly position
7. penetration pricing
8. the size of the price drop
9. price variation
10. to hold the price

Find English equivalents for the following Russian expressions.

1. средняя стоимость
2. предельные издержки производства
3. методы ценообразования
4. разброс цен
5. дополнительная стоимость
6. назначить цену
7. завоевать место на рынке
8. неценовая конкуренция
9. конкурентное ценообразование
10. производить оценку, смету

 

Translate the following sentences from Russian into English.

1. В супермаркетах часто применяется тактика занижения цены для привлечения покупателей в магазины
2. Фирма подсчитывает среднюю стоимость производства товара и затем просто добавляет наценку на прибыль.
3. Иногда фирмы устанавливают разные цены на сходные товары. Это называется разбросом цен.
4. Когда товары новые, некоторые потребители готовы платить высокую цену только из-за их новизны.
5. Существует небольшое ценовое различие между различными типами продаваемых товаров при конкурентном ценообразовании.
6. Успех неценовой конкуренции зависит от упаковки и оформления товара.
7. Когда компания пытается завоевать место на рынке, она использует тактику входящей цены.
8. Цена является одним из многих факторов, которые определяют спрос на товар.

THE FUNCTIONS OF MONEY

Essential Vocabulary

A.D. = Anno Domini – нашей эры

acceptability – приемлемость

accounting – бухгалтерский учет

accumulate wealth – накапливать состояние

B.C. = before Christ – до нашей эры

bill of exchange – вексель, тратта

cash – наличные деньги

check – чек

checkbook money – деньги банковского оборота, деньги безналичных расчетов

coin – монета

commodity money – 1. товар в роли денег (напр., соль, мех); 2. товарные деньги (обладающие внутренней стоимостью в отличие от бумажных)

cost of expenditures – стоимость затрат, издержки от расходов

demand deposit – депозит до востребования; бессрочный вклад; текущий счет

deteriorate – ухудшаться

divisibility – делимость

durability – продолжительность срока использования, долговечность

enhance – увеличивать, усиливать, улучшать

fiat – декрет, постановление, указ

fiat money – деньги, считающиеся деньгами по указу

figure – подсчитывать; считать

gem – драгоценный камень

medium of exchange – средство обращения

meet the conditions – выполнять условия

mint – чеканить (монету)

near money – субститут денег

nonperishable – непортящийся

over time – в течение длительного времени

paper money – бумажные деньги

payable on demand – подлежащий оплате немедленно по предъявлении

perishable – скоропортящийся

portability – портативность

purchasing power – покупательная способность

record keeping – ведение учета, учет

representative money – представительские деньги (бумажные деньги, полностью обеспеченные золотом или серебром)

savings account – депозит, сберегательный счет

stability in value – стабильность ценности

stand for – означать, символизировать

standard of value – мера стоимости

store of value – средство накопления; средство сбережения; средство «сохранения ценности»

time deposit – срочный депозит; вклад на срок

transaction – сделка, операция

uniformity – единообразие

unit of accounting – единица учета реального капитала, единица бухгалтерского учета

value – стоимость, цена, валюта

wealth – богатство, состояние

wear and tear – износ; амортизация; изнашивание

withstand v – выдержать; противостоять

worth – цена, стоимость, ценность

worth – имеющий ценность; приносящий доход

 

Money, with its special characteristics, serves many important economic functions.

Money is anything that people commonly accept in exchange for goods and services. Money has three basic functions. It serves as a medium of exchange, a standard of value, and a store of value. Anything that serves any of these three functions is a type of money.

Medium of exchange. The single most important use of money is as a medium of exchange. A medium of exchange is any item that sellers will accept in payment for goods or services. As a medium of exchange, money assists in the buying and selling of goods and services because buyers know that sellers will accept money in payment for products or services.

Standard of value. The second use of money is as a standard of value. That is, money provides people with a way to measure the relative value of goods or services by comparing the prices of products. In this way, people can judge the relative worth of different items such as a television and a bicycle. They can also judge the relative values of two different models or brands of the same type of item by comparing their prices.

Money's function as a standard of value is also important to record keeping. Businesses need to figure profits and losses. Similarly, governments must be able to figure tax receipts and the cost of expenditures. Money, because it helps provide some uniformity to these accounting tasks, is also called a unit of accounting.

Store of value. The third function or role of money is that it can be saved or stored for later use. For money to serve as a store of value, two conditions must be met. First, the money must be nonperishable. That is, it cannot rot or otherwise deteriorate while being saved. Second, it must keep its value over time. In other words, the purchasing power of the money must be relatively constant. If both of these conditions are met, many people will accumulate their wealth for later use. If not, most people will be hesitant about saving money today that will be worth little or nothing tomorrow.

Characteristic of Money

To be used as money, an item must have certain characteristics. The five major characteristics of money are durability, portability, divisibility, stability in value, and acceptability.

Durability. Durability refers to money's ability to be used over and over again. Eggs would be a poor choice for money because they are fragile and perishable. Metals such as gold and silver, however, are ideal because they withstand wear and tear well. In fact, many coins minted in ancient times are still in existence.

Portability. Money's ability to be carried from one place to another and transferred from one person to another is its portability. As a medium of exchange, money must be convenient for people to use. Items that are difficult to carry make poor money.

Divisibility. Divisibility refers to money's ability to be divided into smaller units. Combining various coins permits buyers and sellers to make transactions of any size. Divisibility also enhances money's use as a standard of value because exact price comparisons between products can be made.

Stability in value and acceptability. For money to be useful as a store of value, it must be stable in value. Stability in value encourages saving and maintains money's purchasing power. Most people who save money are confident that it will have approximately the same value when they want to buy something with it as it had when they put it into savings.

Acceptability means that people are willing to accept money in exchange for their goods or services. People accept money because they know they, in turn, can spend it for other products.

Types of Money

Money comes in all shapes and sizes. The items used as money are a reflection of the society in which they are used. Money as a rule includes coins, paper money, checks and near money. Checks or checkbook money usually make up more than 70 percent of the nation's money supply, and nearly 90 percent of the transactions in most countries are completed by writing checks. Because checks are payable to the holder of the check on demand, checking accounts are often called demand deposits. Checks are representative money because they stand for the amount of money in a person's account. They are generally accepted because the bank must pay the amount of the check when it is presented for payment. Checks, therefore, are considered money because they are a medium of exchange, a standard of value, and a store of value. Other financial assets are very similar to money. These assets, such as savings accounts and time deposits, are called near money and are not usually considered part of the nation's money supply. Bills of exchange are examples of near money. Though they are easily accessible, these accounts cannot be used directly to buy goods or pay debts. Depositors, for example, cannot pay bills directly from their savings accounts. Since funds in these accounts can be easily converted into cash, however, they are considered near money.