Discuss factors affecting product pricing in the UK.
Product pricing in the UK is dependent on several factors. Market structures such as monopoly and oligopoly play a major part in setting price. Market structures can then influence the objectives and behavior within a firm (Sloman & Wride, 2009). This can lead to the use of different pricing strategies, thus having varied effects on the level of price set.
Traditional theory suggests that a firms’ main objective is profit maximization. Therefore, prices will be set in line to meet this objective. A monopoly is defined as one dominant firm in the industry. In theory, a monopoly will have inelastic demand due to no available substitutes. Therefore the firm will be a “price maker”. They can use their market power to control price and raise it to a level where price is greater than marginal cost (Sloman & Wride, 2009).

Average cost

Marginal cost
Average revenue
Marginal revenue
Output
Price
0
Q1
P1

Average cost

Marginal cost
Average revenue
Marginal revenue
Output
Price
0
Q1
P1

Source: Adapted from Sloman & Wride, 2009.
Fig.1. Diagram shows that a profit maximizing monopoly has the ability to profit maximize where marginal cost equals marginal revenue, and will therefore produce at output (Q1). Hence they will charge price (P1) that consumers are willing and able to pay for Q1. At price P1, the monopolist is making excess profit (highlighted).
In perfect competition firms are “price takers” and will therefore charge the market price, whereas a monopolist will charge a relatively higher price and produce lower output. Therefore it can be seen that a firms’ aim of profit maximization under a monopoly market structure, leads to higher prices being charged to the consumer (Fig.1.).
In practice it is difficult to be certain at which point profits will be maximized