ECONOMICS

International Microeconomic Policy

High Substitutability between Commodities May Affect the Ability of Firms to Price above Mark Up1

Relation between Economies of Scale, Scope and Network In Relation To a Potential Need for Regulatory Intervention4

Economies of Scale4

Economies of Scope4

Regulatory Intervention5

Economies of Scale & Economies of Scope In Relation To the Need of Regulatory Intervention5

An Investigation on Collusion in U.S. by Apple Inc. - A Game Theory Point of View7

Game Theory7

Collusion7

A Collusion Case of Apple (U.S.) From a Game Theory Point of View8

Merger Case of Akzo Nobel & Metlac, and the Regulatory Authority Investigations10

References13

International Microeconomic Policy

High Substitutability between Commodities May Affect the Ability of Firms to Price above Mark Up

The classification of goods as either complementary or substitutes is based on relationship between demand schedules. Substitute goods or services are those which, due to changed situations, can replace each other in use or consumption. Research also indicates that an economic concept of good substitution is where two goods or services are of comparable value. So, a substitute good, as different from complimentary good, is a good or service with a positive cross elasticity of demand (Ball & Seidman, 2011, p.44). This indicates that the demand of a good is increased in case the price of another good is increased. On the other hand, the good's demand is decreased in case the price of another good is decreased. Thus, when there is wide range of similar goods or services (substitutes) available in the market then it means there is high substitutability in the market for that good or service (Lipsey & Harbury, 1992, p.67). Hence, it reveals that high substitutability greatly impacts on firm's pricing strategy of their commodities.

Pricing strategies of companies differ from business to business as well as from economy to economy. This is because different companies and economies associate different policies and deals with different products or services. However, there is one particular aspect that impacts on price markups of firms' commodities and that is substitutability. Substitutability is promoted by markets (or government) in order to avoid monopoly and deliver more gains to larger society. So, high substitutability determines the pricing strategy i.e. whether goods must be priced above or below markups. When there are more substitutes of a good or service in the market (high substitutability) then there is less chance for a firm to price their commodity above markup, since customers can go for other substitutes available from different firms. Studies reveal that there are conditions or situations which enable the firms to price their commodities above markup, for instant the good is rare in market or its demand is really high and thereby people would buy it even for high prices, etc. Thus, pricing commodities above markup is also depended on various factors, including the substitutability in the market.

According to Vohra R. & Krishnamurthi L. (2012, p.51), the markup pricing represents that the power to sustain a price above marginal cost is based on the de3mand elasticity of the pertinent good or ...