Schmeckt Gut: Price Elasticity, Market Structure, and Strategy Report

This report analyzes the pricing strategies for Schmeckt Gut, focusing on the introduction of a new energy bar. It emphasizes the importance of understanding price elasticity of demand to determine optimal pricing. The report explores two pricing strategies: price skimming and market penetration, and their applications based on market conditions. Furthermore, it discusses the significance of market structure, particularly the oligopolistic market, and how it influences pricing decisions. The report highlights the need for market research, differentiation, and effective advertising to navigate market barriers and competitive dynamics. It also stresses the importance of collaboration among firms in discussing pricing tactics. References are included to support the analysis of economic principles and market strategies.

Running Head: SCHMECK
PRINCIPLES OF ECONOMICS
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Professor
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SCHMECK 2
Any business that wants to enter the market or come up with a new product in the market
and wants to collect revenue must consider the price elasticity of demand. Price elasticity of
demand plays a vital role in determining whether a firm is in a position to pass the cost of
primary input charge increase to the clients or even benefit from the reductions in the costs of
inputs. Elasticity also helps the business in determining when to increase the price of a
commodity (Labandeira , Labeaga , & López-Otero, 2017). Measuring elasticity of price is
important since it has a great impact on the price of the given product. Schmeckt Gut needs to
know about elasticity so as to know how they will go about setting the particular price for the
good that they are about to introduce in the market.
Performing new product pricing is in most cases difficult for firms. Schmeckt Gut won’t
be exempted in this case for the first time. There are two product pricing strategies that Schmeckt
Gut can follow which include: price scheming and market penetration pricing. Price-Skimming
is a strategy that could be used when the clients in the market are willing and able to purchase
the Schmeckt Besser energy bar (Miller & Alberini, 2016). The other option that the department
can do research which is related to pricing is the market penetration pricing whereby Schmeckt
Gut will be required to offer low prices for the new product. This will help in luring clients away
from the potential competition. This will have an impact on demand and supply.
Part C
When introducing this product in the market, it is important that the firm operates in a
market that has an oligopolistic market structure. This is whereby there exist few firms and
whereby the few firms influence the prices (Nava, 2015). By use of this market structure, the
firm will offer at a relatively low price for a short period so that the product is known by the
clients, the firm with then alter the prices so as to match with the prevailing market prices. Due

SCHMECK 3
to the presence of similar goods, the Schmeckt Besser energy bar will need to be unique and
hence differentiation will be required.
Schmeckt Gut Research Department will be required to make sure that they do market
research on the barriers that exist in the market. The department will also be required to come up
with a pricing strategy since the pricing for an oligopoly is highly rigid (Baumann & Friehe,
2018). The department also needs to come up with the most effective form of advertising so as to
counter any firm that will take a defensive mechanism. Due to the absence of a unit pattern
pricing behavior, the department is required to look for the best approach to the other firms so as
to discuss pricing tactics.

SCHMECK 4
References
Baumann , F., & Friehe, T. (2018). Optimal Damages Multipliers in Oligopolistic Markets.
Journal of Institutional and Theoretical Economics JITE, 12(4), 1-14.
Labandeira , X., Labeaga , J. M., & López-Otero, X. (2017). A meta-analysis on the price
elasticity of energy demand. Energy Policy, 12(3), 112-132.
Miller , M., & Alberini, A. (2016). Sensitivity of price elasticity of demand to aggregation,
unobserved heterogeneity, price trends, and price endogeneity: Evidence from US Data.
Energy Policy, 98(4), 134-165.
Nava, F. (2015). Efficiency in decentralized oligopolistic markets. Journal of Economic Theory,
3(2), 156-187.