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7/30/2019 Raspunsuri Pentru Exam

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1. The approaches of price concept in economic theory.The basis of price definition is the concept of value, which had been broached in various visions of certain

schools of economic thinking, which we can separate by three main directions (theories):Theory of marginal utility

Objective theory

Subjective theory

According to the first theory, value of a product is determined by the utility that consumers give to productsthey need, and the value of utility also depends on scarcity of the respective product. In other words, as StanleyJevons has stated, goods have value not because they cost money, but because people attribute value to them

because they need those products. Utility appears in the relation between goods and human needs. Economicgoods do not have the amount degree of utility, and as such their value is determined not only by intensity of

peoples needs but also of scarcity of products. The value represents two elements: subjective element - wants, andobjective element - scarcity. The measure of price is the final degree of satisfaction of wants, which is reflected inmarginal utility, which gives it such value. A particular mechanism of value formation is based on laws ofsupply and demand: demand depends on utility, and supply depends on scarcity (which determines the

expense needed in order to obtain it).According to objective theory, value of a product is based on its scarcity, as well as labor costs carried out for

making of such product. The relationship between labor, value and price has been shown by Adam Smith in TheWealth of Nations. He has pointed out that the price is based on labor efforts made in order to create a product.

The objective theory also had been adopted by English classics W.Petty and D.Ricardo. D.Ricardo distinguishesbetween the value of use and value of exchange. The first value cannot create the other value, once most usefulthings (air, water) of their exchange value, and products with high exchange value (gold, diamonds) become lessuseful. Utility is a prerequisite of value, but a measure thereof. D.Ricardo defines the monetary expression of price,where prices mean the amount of money for which a product can be changed.

K. Marx had assumed the theory of value from British classics, gave absolute significance to the role of value, inparticular physical labor in creation of value. He denies the role of utility of products as a factor that determinesvalue, utility being considered its premise. Labor represents the only real measure for appreciation and comparisonof value of all products, and it constitutes the real price of products, while the amount of money defines its nominal

price.Subjective theory states that the value, accordingly the price, is based on utility of goods. Predecessors of such

theory were neoclassic, represented by L.Walras, C. Menger, etc. According to this approach, value is determined bymarginal utility, and scarcity of the respective product. Regardless of volume of labor taken for obtaining an

economic product, it gains value only to the extent that it is in demand in the market owing to its utility (utility andusefulness are not synonyms). They give the demand a key role in determining the exchange value and price. Thehigher is utility of the last consumed product the higher is value of such product.

Therefore, we can state that supporters of the objective theory place themselves in the position of suppliers,willing to recover expenses incurred due to performed work, while supporters of the subjective theory supportconsumer interests, where price is an indicator of utility and scarcity of product, on the one hand and demandsolvability on the other hand.

A compromise between these two approaches had been supported by A. Marshall. His fundamental idea was thatboth supply and demand are involved in formation of the price.

In conclusion we can mention that the price represents an amount of money that the buyer has to pay in

exchange for a unit of economic good, the amount for transfer of ownership title on goods from one person to

another.2. Price functions, price system and its categories.

At macroeconomic level the price has the central role in operation of economic system in general, where itappears as an economic leverage on the mode of distribution of resources and all structures of the economic circuitmust be integrated coherently. The price has a number of functions:

a) function of measurement of social labor consumption;b) function of stimulation of production and goods circulation;c) function of distribution and redistribution of national revenue;d) function of a leverage of economic policy, which stimulates development of certain strategic industries.From macroeconomic perspective, the price is one of the most important decision-making areas because it

contributes to balancing of supply with demand at the level of national economy, it allows to stimulate those who


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intend to invest in certain industries and discourages underperforming market players, contributes to allotment ofresources by criterion of efficiency, ensures distribution by economic criteria of obtained results.

At microeconomic level the price also performs a number of functions, such as:a) measurement instrumentfor measuring consumption of labor, raw materials, profit;

b) function of guidance for economic entities regarding the purpose of resources utilization;c) function of determination of amount of product to be supplied in the market;d) function of assurance of income required for continuation of economic activity by the company;e) function of harmonization of interests of participants of exchange process;f) function of evaluation of expense incurred by the consumer in exchange for receiving the benefits arising from

the product;g) function of informing the consumers on value of supplied product.Price System represents a totality of prices on the basis of which goods and services are exchange in the

domestic and international market, as well as a totality of relations between them. There are three types of pricesystems:

Regulated price system is based on unitary and coordinated settling of prices by the state. The market does notinfluence in any way on the level and dynamics of prices. As a result there are significant distortions in the economythat may trigger inflation and unrealistic prices.

Free prices system means that free prices are formed under the influence of market factors. The decision onprices is taken by producers, and final price is set by negotiations between consumers and producers.

Mixed price system means that price is formed by interaction of supply and demand under influence of market

condition, and the state intervenes in case of imbalance, inflation hazard.The essential difference between centralized and free setting of prices is that in the first case the justification

process takes place during the production process and in the second caseduring sales under the influence ofmarket factors. The right to make decisions on price belongs to the producer, and final price shall be set bynegotiations.

In the Republic of Moldova creation of a system of free prices has been commences by a Decree by the Presidentof Republic of Moldova no. 256 dated 27.12.1991 On liberalization of prices and tariffs and protection of thedomestic market.

Presently the price system in the Republic of Moldova includes the following categories of prices;1) by method of formation:a) free prices;

b) regulated prices.2) by area of application:

a) wholesale prices (en-gros);b) purchase prices on agricultural products for needs of the state;c) Consumer prices: on food, non-food products, on services;d) prices in capital construction;e) interest (capital prices);f) salary (labor price);g) price on land and natural resources.Prices can be grouped by separate homogenous categories by many criteria:1. criterion: formation:1) free prices negotiated between economic entities;2) prices regulated by authorities with the right to make decision on prices.2. criterion: area of application:

a. fundamental prices:

Producers prices: for purchase of raw materials, and wholesale prices in wholesale trade; Vendors prices: en gross prices in wholesale commercial enterprises, and en detail prices in retailcommercial enterprises;

Transfer prices: set for intermediary products traded within a company.b. functional prices:

supply prices: catalog, list, quotation, estimate prices; record-keeping prices: average, forecasted, comparable, draft prices; import-export prices; actual prices: contract, exchange, auction, consumption; world prices.


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3. criterion:by the way it reacts to changes of certain factors:1) variable priceschange easily under the influence of factors;2) fixed prices - remain (by decision of authorities) at the same level over a long period of time;3) semi-variableprices limits are fixed within which prices can grow or fall.4. criterion: geographic area and time interval:1) unified pricesprices in force throughout the country and during the entire year;2) differentiated prices - are set at different levels in different areas, or during different seasons.5. criterion: by the way of Value Added Tax Calculation:1) prices with VAT included;2) prices without VAT included.3. The factors that influence the process of price formation.

Prices on goods are influenced by a number of economic, technical, natural and other factors. Some factors causeprice reduction, other factors cause price to grow. Factors that determine price reduction:

increased output; technical advancements; reduction of manufacture and sale costs; higher labor productivity; competition; low tax rates;

development of products sales infrastructure without involvement of intermediaries.Factors that cause price growth: output reduction; economic instability; existence of monopolies; high demand; higher monetary mass in circulation; higher tax rates; salary increase; high profits received by the company; higher quality of goods; low efficiency of capital, equipment, labor force, land.To summarize the stated above, there are the following main factors that influence the process of price

formation, level and dynamics of prices: Supply (amount of supplied goods, competition between manufacturers); Demand (consumer behavior, elasticity of demand to price changes); Competition; Production costs; State regulation (inflation, taxes etc.).4. Price policy as an element of marketing policy.

Marketing is a totality of activities, methods and techniques that has the objective to study the consumers needsand their satisfaction with the products and services under the most favorable conditions. The way a firm forms itsactivity development, perspective directions and concrete practical actions referring to the enforcement of its

potential according to market requirements characterizes marketing policy that constitute a promotion tool of thispolicy.

Product reflects the quality, design, size, package, brand etc.Price includes price charge at various stages of the economic life of the product, special discounts and offers,mark- ups etc.

Distribution reflects the distribution channels, logistics (storage, transport), sales, methods etcPromotion- advertising, public relations, merchandising.From marketing point of view price is the most flexible component of marketing mix, it can be quickly changed

in comparison with other components of marketing mix, and price changes regularly receive an immediate answer ofthe market. The value concept used in marketing is different from the one used in economic literature where thisconcept acquires two meanings: use value and exchange value.


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From marketing point of view the use value of the made purchase is defined as a relation between the perceivedprofits (quality) furnished by consumers product and the totally perceived sacrifice by the consumers regarding thepurchase and use of this product.

Price may be a major element of marketing maximum, but price decision should be coordinated carefullyconcerning product, promotion and distribution. This coordination is performed by placement and segmentationstrategies chosen by the firm, these strategies constitute the general way of marketing mix determination.

The price is a particular variable that has several features that define its state. So, first, the firms profitabilitydepends on the price charge. All other elements of marketing mix may create values for the consumers and the costsfor the firm. Anyway, only price produces profit that allows costs coverage and profit gain. Price is one of the mostvisible variables, being easily perceived by consumers, and when this variable may be controlled by the enterprise,

price acquires much flexibility.According to the chosen market strategy, it is necessary to coordinate the price with other variables of marketing

mix. Thus, the price change may refer to the modifications of goods and services quantity that might be paid by thebuyer, as well as to products quality, the time or place of goods transfer, the market type, the offered discounts.Thus, the price establishes a complex submix that includes a number of price categories and forms used by the firmthat considers their relationship. The price allows the supplier to make the decisions from this domain more flexible.

The price place in marketing mix

In comparison with other elements of the mix, the price seems to represent rather an element of cost than anelement of profit for the consumers. The graphical representation of the price place in marketing mix is thefollowing: pricedistribution, product, promotional communication.

The pricing policy comprises a correlated set of principles, norms, certain measures and methods, by means ofwhich a firm defines its position regarding the price of its products to reach the objectives set at certain periods, andthey are:

1.Survival

The core: a minimum price level is practiced (as a rule the costs are covered or an unessential profit is gained).The objective: to keep its position on the market.Environment: strong competition, consumers requirements are changing, clearance sale.Effects: fixed capital that is worn out and cannot be replaced, minimum dividends.2. Prof it maximi zation

The core: the price level is chosen that assures maximum current profit.The objective: short-term economic and financial results are favored.Environment: uncertainty, lack of stability, economy of transition.Effects: the further results are affected negatively.

3. Sales volume maximi zationThe core: the good is produced in large quantities, the price is charged according to the supply, the

intermediaries are offered commissions for the reached production volume.The objective: to obtain maximum possible returns in each segment of consumersEffects: it leads to a good position of a firm on the market.4. Market share maximi zation

The core: the good is produced in large quantities and it is destined to the markets vulnerable to price.The objective: to obtain the effect of the economy of scale in production (the reduction of unit costs), to charge

low prices in order to stimulate the supply.Effects: as a response the competitors may reduce the price and attract the clients.5. Maximum improvement of market advantages

The core: a higher vulnerable price is charged for the product destined to particular consumers segments. Whenthe sales volume is decreased, the price is reduced to the level suitable to other segments.

The objective: to gain high profits.Environment: the launch of a new product (service), deficit supply, unstable economic situation.Effects: the further reduction of price may have negative effects over the sales volume.6. Products promotion

The core: high prices are charged for the products of high quality that have been accepted by the consumers.The objective: to cover the costs made while increasing quality, scientific researches, substantial modification of

product policy, distribution etc.Effects: gaining leading position in quality.Thus, when confronted with strong competition, the firm follows the objective of maintaining on the market that

is assured by means of rigid control of the production cost level. When the firms objective is to obtain ceiling


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profit, it is necessary to compare the demand volume of costs increase in connection with various price levels. Thisoperation assumes more variants of comparison. In the first case the objective is to obtain a considerable volume ofshort-term profit by the firms that have a sound position on the market or by the firms with vulnerable future.

In the second case the same objective is obtained by price increase. But it is important that this increase shouldbe motivated by the investments volume used to increase products or to improve quality. In the third case themaximization of long-term profit is obtained by adding a reasonable profit margin to unit cost, this margin assureseconomic and financial security of the firm. Thus, the objectives of pricing policy are reflected by certain indicatorsas: sales volume, production costs, product profit and global profit, the profitability of sales, incomes, product

profitability, assets profitability, owners equity and fixed capital profitability. As you see the comparison of pricestrategies should be done according to the economic and financial analysis.

5. Price strategy, strategic alternatives in prices substantiation.Price strategy represents a set of methods used by the firm in order to achieve the objectives settled by pricing

policy. The elaboration of a price strategy has three stages: gathering information, strategic analysis and strategyformation. These stages comprise the following activities:

Gathering information

The evaluation of production costs and their application means explaining the costs that directly influenceproduction, the application and the analysis of the costs that change when the production volume changes.

Giving details of financial objectives in order to obtain minimum profit, average profit and maximum profit for acertain period of time.

The determination of potential competitors means gathering information about competitive firms past activity,about the administration personnel, about the organizational structure and its activity projects. At the same time the

possibility to charge some agreement prices or prices differentiation are studied according to firms goodwill,products quality and varieties.

Strategic analysis

The analysis of the firms financial situation means understanding the factors that influence net profit and thedetermination of the breakeven point.

The analysis of market segments comprises a number of measures that divide the market into segmentsaccording to certain categories of consumers who will show different reactions towards price in order to single outthe possibility to charge differentiated prices.

The analysis of competition on a particular market, its objective is to foresee possible reactions of thecompetitors towards the price.

The evaluation of the State influence on price mechanism by means of legislation in price domain and tax policy

domainStrategy formation

The determination of final strategy considering all the above enumerated factors.The firms price strategy comprises the following classifications:1.The strategy of high prices is used in the substantiation of prices for exclusively new products. It is based on

the possibility of market segmentation according to the purchasing power of the customers (beginning with thesegments destined to the richest customers to other segments). The strategy is based on the idea that it is easier tolower the price than to rise it.

At this stage the firm is a monopolist, thats why it can use the policy of high prices whose objective is to recoupthe investments immediately. When the sales decrease, prices also decrease, and the firm turns to other segments ofcustomers. This strategy is efficient when the following conditions are respected:

Increased current demand for the particular product is registered.In order to keep the clientele the price should correspond to the quality because the increased price promotes the

image of the best quality.Further price discounts should be offered with great attention because the consumer may perceive lower prices asindicators of lower quality.

Under the conditions of cut down production the unit costs should be reduced in order to avoid advantagesthrough further price reduction and not to affect long-term financial results.

2.The strategy of average prices is characteristic to the firms that have the objective to gain a long-term profit.This strategy is considered to be the most appropriate because its application exclude the price war, it doesntfavor competitors appearance in the branch and assures a reasonable profit calculated to invested capital (in western

practice 8-10% profit to stockholders capital is considered to be normal).


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3.The strategy of low prices (the strategy of market cornering), the firm first charge low prices for uniqueproducts. In this case the firm strives for market cornering from the very beginning, increased sales are registeredthat recover invested capital. When the product is recognized by the consumers, the firm turns to certain price rises.The implementation of this strategy should be carried out attentively because any mistake will not allow investmentsrecoup; this fact will affect the firms financial results. There are also some risks that further increase in price wont

be accepted by the buyers and the firm will have to go on charging initial prices.4.The strategy of target prices is used by large corporations and it means prices and quantity changes according

to market position under the condition of compulsory profit gain.5.The strategy of connected prices. When charging these prices the firm considers selling prices and the

exploitation expenses (technical services).6.The strategy of following the leader. Its when the production price of the firm-leader is considered to be a

given variable (in competitive market or oligopoly). In some cases the price may vary according to the quality ornew technical characteristics.

7.The strategy of unchanged prices. Under the conditions of constant change of the prices for resources andraw materials, the costs cannot be the same for a long period. In order to exclude price rise the firms apply to weightor size loss and so on. Though such actions may influence negatively products quality, the consumers accept thisstrategy to the detriment of price rise.

8.The strategy of psychological prices charged at a level less reduced than a round number that creates anillusion of lower prices (1,99 etc.).

9.The strategy of quality-price. Any firm deals with the problems of setting an average quality and price level

to its product that is inferior or superior to them. The strongest competition occurs between the products of differentquality as we can see in table

Interdependence between price and quality in the strategy quality-price.

Strategies 1,5,9 may be applied simultaneously by different firms in the same market on condition that there arethree categories of consumers on each market, the first category being interested in quality, the second categoryin

price, the third category- both in quality and price and it pays attention to the balance between these two elements.Strategies 2,3, 6 are menacing the previous strategies, as they offer products of high or average quality and ataverage or lower price. Strategies 4,7 and 8 reflect a too high price in comparison with products quality,determining negative reaction of the consumers, who will feel deceived especially in strategy 7. That is why thesestrategies should be avoided or applied for a short period of time. Cross competition may occur between the firmsthat apply one of strategies 2 and 7, or 6 and 8. The firms, that offer better quality goods at the same prices or atlower prices, have more chances.

Quality High price Average price Low price

High 1.The strategy ofexception

2. The strategy of highvalue

3. The strategy ofsuperior value

average 4.The strategy of highprices

5.The strategy ofaverage value

6. The strategy ofacceptable value

Low 7.The strategy ofburglary

8. The strategy of falseeconomy

9.The strategy ofsavings

The problem of strategies quality-price becomes more serious when the economy of a country gets into (comesout of) a period of recession, the number of buyers decreases and their requirements turn to cheaper products. Inthose situations the firms have to identify strategic alternatives that can result into a combination of decisionsconcerning price and quality, the firms have to choose the best variant considering settled motivation and objectivesas well as the consequences of each variant application.

10.The strategy of using price mark ups and mark downs comprises the following types-price mark up that results from a special clients order, excellent quality, supplementary services offered or

when the firm pays for the purchased goods in installments.-price mark downs for cash payment (for example, the buyer who transfers money within 10 days may get a 2-3% discount). When the buyer purchases the goods in bulk, the discounts are more essential.

-this type of discounts improves the liquidity degree of the supplier, it assures returns rate and the reduction ofthe expenses connected to obtaining debit debts.

-mark downs for the purchase volume that is stated in percents regarding the total value of the purchased goodsor depending on the number of the purchased units. These mark downs serve as a stimulus to buy goods from thesame supplier:


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a) non-cumulative mark downs represent the reduction for the purchased quantity over the minimum lot. Forexample, for the quantity of 1-15 units there are no reductions. For 16-25 units there is 5% reduction, for 26-35 units

7% reduction etc.b) cumulative mark downs are offered to the clients, if during a certain period they have purchased a quantity

over minimum limit. For example, if the clients purchased to 1000 units per year, the discounts will be 12% ofvalue, from 1001 to 3000 units15% etc.

- seasonal discounts may be from 10-15% to 50-75%- discounts to devoted customers that may reach 15-30%;- functional reduction is applied by the manufacturers to commercial units who sell, store and advertise their

goods;- progressive reduction is for purchasing a series of goods in the terms established earlier;-dealers reductions are offered by the manufacturers to the permanent representatives and intermediaries. It is

used in selling cars, tractors and so on and they can reach 15-20% from the retailing price;- special reductions when samples series are sold.-hidden reductions are offered to the clients as preferential credits, free of charge services, free of charge models.-discounts offered when using a unique package for two or more products. For example, toothpaste together

with a toothbrush.-discounts for the goods that are in great demand in order to stimulate more sales. For example, low prices for

McDonalds hamburgers within a month.- special event discounts that are applied in case of a special event or an anniversary. They are considered quality

discounts. They serve to improve the firms image and position on the market.- the clearance sales of the goods that arent in demand. For example, if the product is purchased till 8 August,

the buyer will have 19% discounts, from 9 till 21 August -30%, and within 22-30 August-50%.-That kind of information suggests the buyer to wait till the reductions are more essential, but there exists the risk

of total clearance of stocks at that moment. Anyway experience shows that the largest quantity of goods is soldduring the first period of discounts.

-club reductions are offered to the members of various clubs. For example, national or international clubs issueand sell activity licenses to commercial units, if they agree to offer discounts to the club members. They pay acertain sum of money per year and for that they receive the clubs card that they use when purchasing goods andservices. These cards permit 10-15% reductions and even more.

-the discounts applied in Arabic countries, in Balkans countries and in Asia. Negotiation practice in thesecountries show that the buyers dont buy anything if they are not offered reductions in order to be honored. Thatswhy in many cases the price, that is negotiated initially, is artificially risen.

6. Price formation in the lifecycle of the product.The li fe cycle of a product or the economic li feof a productis the time period between the moment of new

product launching on the market and the moment of its final withdrawal from the market, because the need, forwhich it was created, has disappeared, or because a new product has appeared that meets the same requirements butat a higher level. Each product has a particular life cycle that comprises many stages or phases the product passesthrough. At each stage of its life cycle the product needs a particular marketing policy, a specific promotional policy,a particular price and distribution strategy. At the same time, according to the stage that the product passes, itreaches a certain level of sales and certain costs, it registers a certain price and gains a certain profit.

The classic product life cycle has four stages:


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I. Introduction. At the market introduction stage the size of the market, sales volumes and sales growth aresmall. A product will also normally be subject to little or no competition. The primary goal in the introduction stageis to establish a market and build consumer demand for the product.

There may be substantial costs incurred in getting a product to the market introduction stage. Substantialresearch and development costs may have been incurred, for example, thinking of the product idea, developing thetechnology, determining the product features and quality level, establishing sufficient manufacturing capacity,

preparing the product branding, ensuring trade mark protection, etc. Marketing costs may be high in order to test themarket, launch and promote the product, develop a market for the product, and set up distribution channels.

The market introduction stage is likely to be a period of low or negative profits. As such, it is important thatproducts are carefully monitored to ensure that sales volumes start to grow. If a product fails to become profitable itmay need to be abandoned.

Some of the considerations in the introduction stage include:Product development: research and development of the basic technology and product concept, determining the

product features and quality level.Pricing: should penetration pricing or a skimming price strategy be used? A skimming price strategy might be

appropriate where there are very few competitors.Distribution: distribution might be quite selective until consumer acceptance of the product can be achieved.Promotion: marketing efforts are aimed at early adopters, and seek to build product awareness and to educate

potential consumers about the product.II. Growth. If the public gains awareness of a product and consumers come to understand the benefits of the

product and accept it then a company can expect a period of rapid sales growth, enter the Growth Stage. In theGrowth Stage, a company will try to build brand loyalty and increase market share.

Profits are driven by increased sales volume (due to growth in market share as well as an increase in the size ofthe overall market). Profits might also be driven by cost reductions gained from economies of scale, and perhapsmore favorable market prices. Competition in the Growth Stage remains low, although new competitors areexpected to enter the market. When competitors enter the market a company might be subject to price competitionand increase its marketing expenditure.

Some of the considerations in the Growth Stage include:Product improvement: product quality might be improved, additional features and support services added, and

packaging updated.Pricing: if consumer demand is high the price might be maintained at a high level.Distribution: distribution channels might be added as consumer demand increases.Promotion: promotion is aimed at a broader audience. A company might spend a lot of resources on promotion

during the Growth Stage to build brand loyalty.III. Maturity. When a product reaches maturity, sales growth slows and sales volume eventually peaks and

stabilizes. This is the stage during which the market as a whole makes the most profit. A companys primaryobjective at this point is to defend market share while maximizing profit.

In this stage, prices tend to drop due to increased competition. A companys fixed costs are low because it is haswell established production and distribution. Since brand awareness is strong, marketing expenditure might bereduced, although increased marketing expenditure might be needed to retain market share and fight increasingcompetition. Expenditure on research and development is likely to be restricted to product modification andimprovement, and perhaps research into improved production efficiency and product quality.

Some considerations for the mature product market include:Product differentiation: increased competition in the mature product market means that a company must find

ways to differentiate its product from that of competitors. Strong branding is one way to do this.Pricing: prices may be reduced because of increased competition. Firms in the market should be careful not to

start a price war.Distribution: distribution intensifies and incentives may be offered to encourage preference to be given overcompeting products.

Promotion: promotion will focus on emphasizing product differences and creating/maintaining a strong brand.IV. Decline. A product enters into decline when sales and profits start to fall. The market for that product shrinks

which reduces the amount of profit available to the firms in the industry. A decline might occur because the markethas become saturated, the product has become obsolete, or customer tastes have changed.

A company might try to stimulate growth by changing their pricing strategy, but ultimately the product will haveto be re-designed, or replaced. High-cost and low market share firms will be forced to exit the industry.

As sales decline, a company has three strategy options:


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Figure 3.1. Long-term equilibrium on a perfectly competitive market

As a consequence, short-term equilibrium price will decrease, achieving a final equilibrium. The relation thatreflects the optimal price size on a perfectly competitive market on the long-run is:PEL < PESLong-term balance occurs when aggregate demand equals aggregate supply, if there is a sufficient number of firmsin the branch, the price will reach the level of average costs, their profit will equal zero and these firms will be calledmarginal firms.Thus, for a long period of time the force of competition occurrence determines not only the price of the product orthe quantity changed under the conditions of balance, but also the number of companies in the branch

9. The peculiarities of price formation in absolute monopoly.Imperfect competition is a feature of the markets where the producers have more freedom in price charge than in

perfectly competitive markets. Monopoly belongs to that type of markets and it has the following characteristics:-the product is manufactured by a single firm;-the product cannot be substituted;-there are barriers to entry for other producers (patents, licenses etc);If in a competitive market the economic agent accepts the price as given and the demand curve is parallel to the

axe X, the monopolists price is fixed, imposed and controlled by the monopolistic firm and the demand curve inthis case is negatively sloped. When charging the price, the monopolist may manipulate the supplys volume only ifhe is a unique supplier of the product in the market.

The methods of price establishing under the conditions of monopoly are:Dimensioning the production volume in the condition of profit maximization and price establishing according to

the existing demand (achieving the maximum possible profit from each consumers segment):Pm>(MC=MR)Pm=(MC=MR)Pm


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requires the monopolistic firm to know the demand for its goods and services of each consumer apart, trying todetermine the customers to pay the maximum price and to obtain all the consumers surplus1;

The second degree discrimination occurs when the monopolistic firm charges different prices for differentquantities of goods being aware of the demand curve for each category of consumers and trying to obtain a part ofconsumers surplus;

The third degree discrimination occurs when different prices for the sale of the same product on differentmarkets or in different locations are fixed, taking into consideration the distance, transport expenses and theelasticity of different demand on corresponding markets. The discrimination may occur among native and foreignconsumers, charging higher prices in the home market and lower prices in foreign markets in order to make the firmmore competitive in export domain. This is dumping price used in international trade. This situation presumes thesale of a product on a foreign market at the price lower than the price of the same product in home market. It offersthe possibility to destroy the competitors and to get leading position on the corresponding market. The use ofdumping price is a part of unfair competition.

10.The peculiarities of price formation in monopolistic competition.Monopolistic competition is situated between two market types: competition and monopoly. Abraham Frois said

about monopolistic competition: Monopolistic competition hasThus, monopolistic competition has all the premises of perfect competition except one: products homogeneity.

It is replacedby products differentiation, the situation when the buyers have the possibility to choose the productthey want, and the sellers may impose the price and even the quantity by means of the policy of new products lines.

The differentiation may occur:Objectively: the product will be different, on one hand, due to new material presentation, the use of constructive

materials or under a new brand, and, the presentation of a new product that has original, innovative qualities, on theother hand

Subjectively: the product will be presented as a specific one, especially by means of advertising.If the producer has succeeded to attract the buyers by individual peculiarities of his good, he obtains a temporary

monopolistic position over this product. In a short period of time the firm will choose its production volume underthe conditions of equality MC=MR, and it will charge the price according to the evolution of the demand curve. Thefirms profit will be the same as of the monopolistic firm. For a long term the b alance of the competitivemonopolistic firm has two features:

The products price, as in monopolistic competition, is higher than MC, but due to the fact that the demand curveis negatively sloped, MR is lower than the price.

Free entry to the market and respectively a large number of firms make the price equal to ATC as in perfectly

competitive market, this fact will bring out zero profit.11.The peculiarities of price formation in oligopoly.

The main featuresof oligopolies are: Few sellers / producers; Barriers to entry; interdependence; uncertainty; homogeneous supply (homogenous / pure oligopolies); differentiated supply (differentiated oligopolies).

Price behavior within oligopoly conditions is determined by the following behavior of companies:attitude of peaceagreements regarding zones of influence, and the practiced level of prices, price cartels

formation;

attitude of warprice war triggering.Negative consequences of the price war:The price advantages on competitors do not last (are short-term);The customers become sensible to price and further increases may result in a decrease in demand;The price used within the price war becomes a comparison price for consumers;The distortion of the psychological barrier between price and quality;

New competitors appearance through the acquisition by other entities of the production capacities that belongedto the companies that had exited the market.

In order to determine some of the possible moves that can be performed by companies within an oligopolisticmarket, the Game Theory can be used, which studies the individuals strategic behavior. As one of the


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characteristics of an economic decision is its substantiation in the conditions of uncertainty, within the practicalexercise of the game theory each participant tries to identify the strategy that would allow him to obtain themaximum gain or to minimize losses.

If one of the firms charges a lower price, the returns difference is obvious. This example reflects the idea thateach firm tries to maximize the profit and that is why it is more attractive to reduce the price in order to improvesales results. However, this reduction allows obtaining a higher profit for a short period of time, thus, on the long-run, it is better that the firms coordinate their actions.

12.The methods of price determination based on cost.Cost and price have common economic nature, both expressing the consumption of social work. At the same time

cost represents the biggest part of a product value, the other part being composed of profit, excises, VAT, mark-ups.According to SNC 3 The structure of consumptions and expenses of a firm, production cost, that is in the basis of

price determination, represents the consumptions that are assigned to finished product and rendered services. Totalconsumptions (TC) reflect the resources used to produce the goods and to render services in order to obtain profit.

The structure of total consumptions may be represented in two ways:-depending on the way of assignment to the production;-depending on the evolution when modifying production quantity;According to the first criterion the consumptions are divided into direct and indirect consumptions.Direct consumptions (DC) are the consumptions that may be assigned directly to a particular product. They are

represented by:1. Direct consumptions of materials.

2.Direct consumptions concerning work remuneration.3.Direct consumptions concerning compulsory social and medical insurances.

Indirect consumptions (IC) are the consumptions that cannot be directly identified for a particular product.At the end of a business year production indirect consumptions are distributed according to a particular

distribution basis (the quantity of produced goods; material consumptions, etc.).According to the second criterion, total consumptions are divided into:Variable consumptions (VC) are those consumptions that change according to production volume, executed

work volume and rendered services volume.Fixed consumptions (FC) are those consumptions that stay constant within a particular scale of modifications,

regardless of production volume variation or business activity of executive personnel.At the same time the problem of price determination imposes the usage of marginal cost (MC) that is defined as

additional cost charged for the production of an additional unit

MC = TC / QMethods of costing based on the cost are:

The method of total cost

The essence and way of application: total costs are established through the sum between direct and indirectconsumptions (or fixed or variable consumptions), to which a profit margin is added that corresponds to the effortmade and the risk taken. The margin has to be measured so that it shouldnt be attractive for new competitors toenter the market. The State establishes limits or limits the size of particular consumption articles and of the

profitability of some products.The relation of costing is:

P =ATC + (ATC x Mp)

where:ATC-average total cost

Mp- unitary profit margin

For example: if ATC constitutes 100 leis and Mp-20%, the unit price will be:P=100 + (1000.2) =120 leisThe usage of the method cost=plus when determining the price by the firm corresponds to the objective of

obtaining a satisfactory long-term income level, not necessarily maximum level. The usage of this method in long-term substantiation of the prices has certain advantages such as simplicity, the assurance of an adequate profitabilitylevel.

Advantages

This method is simple, as all the necessary information is of inner use.It is considered equitable both for the producers and for the consumers.It is recommended to the prices with a reduced competition level.


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It is efficient for exclusively new products or for the production with distinct differences between existing ranges.At the same time this method has some disadvantages:It is more oriented towards supply than towards demand.It implies current costs and not long-term costs, considering inflation.There exists the risk of not selling the whole quantities of production for which total costs are being determined.The price size doesnt correlate sales volume.The elasticity of demand is not taken into consideration.Possible advantages concerning higher price practice are not used depending on consumers solvency.

The method of partial cost (Direct costing, marginal costing)The essence and way of application: profit margin is added to average consumptions variable or direct one.The relation of costing is:P=AVC+ (AVCMp) orP=ADC+ (ADC+Mp) whereAVC- average variable consumptions

ADC- average direct consumptions

Mp- profit margin or tax margin that represents the sum between average fixed costs and expected profitMp= AFC+ unitary Pf, where

AFC- average fixed consumptionsunitary Pf- unitary profit valueFor example: if AVC represents 80 leis and the tax for a unit is 40 leis (considering it sufficient to cover fixed

consumptions, assuring profit gain), the unit price will be:P=80+40=120 leisThe method of partial cost is widely used in highly- developed countries. For the first time it was used by some

firms in the USA an was named direct costing. In Europe this method got the name of marginal cost, having thesame nature. This method is used in the countries with developed economy because of the following advantages:

The size of fixed consumptions or indirect consumptions do not spread over production cost, it is recoveredthrough the size of margin added to AVC (ADC).

AVC or ADC are flexible according to production volume.This method is efficient in determining potential results when accepting supplementary order.At the same time this method has some disadvantages:Demand and goods utility for consumers arent taken into consideration, average variable costs are considered

price minimum limit.This method requires the control of the quantities produced to eliminate the influence of fixed costs on tax margin.

13.Price substantiation according to the parameters cost-volume-profit.When taking strategic decisions the entrepreneur tries to solve the problem of quantities that are to be produced

and offered on the market. At the first sight the idea seems simple: the things demanded will be produced in thequantities that may be sold. But this decision of the producer isnt convenient in all the situations. If an activity, agood has a cost that is higher than the price that can be obtained; the seller increases losses by increasing production.When analyzing the parameters cost-volume-profit, financial management uses the method of Breakeven Point.Analysis BEP is the determination of the quantity that, if it was produced, at a certain level of cost, and, if it wassold at a certain price level, the profit would be zero. Accordingly, at crucial point, sales income is equal to totalcosts registered to produce a particular good. The way, in which sales volume changes influence cost and profitmodifications, is established in the same manner.

In order to find the breakeven point three methods are used:Equation method

TR=VC+FC+PfAs the profit inthe breakeven point equals zero, for this point:TR=VC+F C, sau

P*Q=(AVC*Q)+FC

Considering this equation the breakeven point may be determined in physical units:QBEP i n physical uni ts=FC (Price-AVC)

The method of contribution margin.Unitary share margin that is also called contribution per unit represents the result obtained from the sale of a

product unit after unitary variable costs repayment and it includes the sum between operational profit and unitaryfixed costs.


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CPU=Price-AVC or CPU=AFC+Pf, accordinglyQBEP in physical uni ts=FC/CPU

The method of graphical representations

CZona profitului TC

VC

Zona pierderilor

FC

QBEP

Figure 1. The graphic of the dependence between the parameters cost-volume-prof it

The crossing point between total return (TR) and total cost (TC) shows the production quantity that assures zeroprofit. If the firm produces a quantity smaller than QBEP, each unit sold in excess will bring profit.

If the firm produces more goods, first there are established fixed total costs of each type of the product accordingto the contribution in sales volume, and then QBEP of the product is determined.

The exceeding of the effective sales volume (or a planned one) over the sales volume from the breakeven point isrepresented by the security indicator (Is) that shows how much sales volume can be reduced without riskingsuffering losses.

Is=Qef(plan)-QBEP,

where

Qef(plan)- effective or planned quantity of salesThe analysis of the breakeven point serves the basis in planning estimated profit from operational activity.QPf estimated=(FC+Pf estimated)/(P-AVC) or

QPf estimated=(FC+Pf estimated)/CPU

whereQPf estimated- sales volume in unit necessary to obtain estimated or planned profit.Pf estimated-the amount of estimated profit. .Method BEP is also useful when establishing minimum value of the sales price that is determined according to

the sales volume data and the level of the consumptions and expenses, constant or variable.Simultaneously, maximum amount of total consumptions and expenses may be projected, it should reach the

value of sales income.The advantages of BEP method consist in the fact that:-it estimates the influence of the factors on the deviation of operational profit size;

-it calculates the sales volume at which the firm will have neither profit nor losses;-it establishes the level at which the production becomes profitable;-it records the relation between production dynamics and cost dynamics;-it determines the usage degree of production capacity in connection with the profit volume;-it estimates the sales volume necessary to obtain the estimated profit;-it determines the security indicator;-it explains the choice of the best variant of decision taking.

The disadvantages of BEP method

-in order to determine the potential price, production volume is used that, in its turn, depends on price level;-the demand for the produced good isnt taken into consideration;


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-it is based on the idea that everything, that is produced, is sold;-it presents real data only when the price is constant regardless sales volume.14.Price determination based on demand.

Methods of price determination based on demand are founded on the principle of the perceived valueapproachthe start-up point for pricing is represented by the utility degree of the goods.

The companies that use methods based on demand aim at the potential value of the good which might beassigned by the consumer, at the degree of utility represented by that good for the consumers, at different priceelasticities of demand, and at the possibility to substitute the consumed products.

Practical accomplishment takes place through testing, surveys, experiments and so on.The factors that should be taken into consideration at the moment of price fixing are:

The structure of demand according to consumers number and purchasing power, possibility of their groupinginto segments, elasticity of demand, existence of substitutes;

The information on prices and quality of similar products that consumers have;The effective price level (demand price) that the consumer is willing to pay according to his / her purchasing

power, utility assigned, or emergency of acquisition;The positioning of the price of the respective product by the consumers according to the scale: high, medium, or

low prices;The correlation between price and quality, or by the producers fame and price assigned by the consumers (for

exampleif a high price is charged the good is of high quality, or if the price is highthe manufacturer is famous).The methods of pr ice determination based on demandare:Technical analysis of value;Elasticity coefficient method.1) TECHNI CAL ANALYSIS OF VALUE

By means of technical analysis of value, ensuring an optimal relationship between the usage value of thegoods and the costs incurred in order to produce and sell them, that are reflected in their price, is followed. Withinthe analysis of value can be chased and achieved certain directions, namely:

Increasing the usage value and cost diminishing;Maintaining the usage value at the same level and cost diminishing;Increasing the usage value and maintaining cost level;Increasing usage value together with a light increase of costs.The analysis of value can be performed both to existing products, and to new ones, in the design stage. However,

a higher efficiency might be achieved as a consequence of value analysis in the design stage, while 75-80% of costs

are determined by the decisions made at that stage.This method appeared in the period of the Second World War, when General Electric Company from USAsuccessfully analyzed the possibility of substitution of some traditional scarce materials. The founder of the methodis L.D. Miles, entrusted to be in command of a team working on implementing of this method in order to look forconstructive solutions alternative to the companys products. Within 4 years, the team succeeded in constructivemodifying of 230 products, and the associated production costs decreased, on average, with 25%, withoutdiminishing the quality of the products. Due to these successes, in 1959 the American Society of Value Analysiswas founded; in 1964 Miles estimated that already 10% of American industry used the analysis of value. Soon, themethod spread in France, Italy, England, Germany, and Japan, and in the beginning of 70 it also reached some of theformer socialist countries.

Miles defined the analysis of value as a creative activity, intended to eliminate unwanted costs, costs that haveno influence on the functions, quality, or life of the product.

For price substantiation can also be used techniques of determination of importance coefficients (grading)

of usage value parameters based on the matrix of parameters interaction. With the help of the matrix theimportance of each parameter of the usage value can be assessed according to the total function of the product,expressed by the functions grading coefficient, or the weight of each parameter within the entire usage value. Theexercise of this method implies 3 different stages:

Specifying the parameters and their description within the total usage value;Combining analysis of the parameters according to their importance and interdependence;Estimating the solutions of dimensioning the grading coefficients.

The result consists in a range of positive or negative decisions, according to which the importance degreeof each parameter for the user is determined. For example, if a parameters weight is 35%, then for this parameterthe consumer will pay 35% of the price of the good.


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The results can be verified by the relation D = nx ( n1 ) / 2, where n is the total amount of parameters.2) ELASTICITY COEFF ICI ENT METHOD

First step: estimating the price elasticity of demand (Ke) on the target market;Second step: determining the profit margin according to the price elasticity of demand:Mpke=-(1)/(Ke+1);

Third step: fixing the price applying the profit margin to average variable costs:P=AVC(1+Mpke).

The advantage of the method consists in determining the profit margin and the price according to the coefficientthat expresses the sensibility degree of consumers on the target-market at the price level.

15.Price adjustment to competition, the correlation of prices for new products.Price correlation implies comparison performance, which will represent the basis for the establishment of new

products and similar products that exist on the market both in terms of the usage value and in terms of the economicefficiency obtained both by the producer and by the user. The necessary condition of the correlation success is theright choice of the standard products.

Standard products are similar products that are domestically produces or imported, to which new products maybe compared regarding their price substantiation and charge.

Price correlation may take place through many methods, according to the elements that are basic in thiscorrelation, as follows:

The correlation through the comparison of the usage value parameters is used for those products whose

price is determined by the usage value, the value given by certain parameters common to both products. The relationbetween technical parameters of those two products expresses the relation between the prices of those two products.

When one parameter is used for correlation, the coefficient of correlation (k) is determined as the ratio between aparameter of the new product (An) and the same parameter of a standard products (Ae).

Ae

AnK

When more parameters are correlated, the coefficient of correlation can be determined in 3 ways:

....Ce

Cnx

Be

Bnx

Ae

AnK

.....GSCCe

CnGSB

Be

BnGSA

Ae

AnK

Np

CeCnBeBnAeAnK

...///

where: GS is the parameters share in the total usage value (that is determined by the help of the matrix ofparameters interaction).

Npthe number of compared parameters.The coefficient of correlation, which has been determined by one of the above-mentioned methods, is used to

determine the price of the new product:Pn = Pe x K,

where: Pn-the price of the new product; Pe-the price of the standard product.If the new product implies expenses with supplementary endowment, that means constructive elements totally

new in comparison with the standard product, they will be added to the correlated price:Pn = Pe K + ChDS

where: ChDSexpenses on supplementary endowmentThe correlation within a price schedule is used for those groups or subgroups of products that have a very

large variety of products and possible assortments. They are generally used in the industry of ready-made clothesbecause of a very large number of existing assortments and models, as well as tissues these are made of. Priceschedules are also used to charge the price for some cotton, wool cloths, shirts, leather gloves, purses, knitweargoods for women, windows, mirrors, glass products, pottery etc. A price schedule isnt recommended to those

products whose number of assortments is smaller and prices suggestions take place once or twice a year.


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Price schedules are differentiated due to the fact that they take the form of a table where prices are alreadycalculated for the whole assortment or for the dimensions of the same product or groups of products, including thoseones that will be put into production in the future.

In order to elaborate a price schedule it is necessary to find two essential parameters (the first and the lastelement of the series), and then the growth rate is determined (r):

PnP1

r = ------------

n1

where: Pn-the price of the last assortment; P1-the price of the first assortment of the series; n-the number of theof the series terms.

Pricing within a series will be made by adding the growth ratio to the price of the previous assortment (P2=P1+r,etc.).

The correlation within the schedule can be performed on any structural element of price (cost, VAT, excise etc.).If the correlation element is the average cost, the general form of the schedule will be:

Assortment ATC

1 ATC12 ATC2 = ATC1 + r3 ATC3 = ATC2 + rn - 1 ATC(n-1) = ATC(n-2) + rn ATCn

The correlation within series of prices includes the price of the new product into the series of the existingprices according to the dimensions or other parameters accepted as the basis to establish the supply price. Pricesseries may be used when establishing supply prices of the products of construction industry (bearings, taps,assembly elements, coasted tubes, industrial devices etc.).

In case the parameter of the new product falls into an existing series of parameters, there is a correlationthrough interpolation:

0

01

01

0xx

xx

pppp

In case the parameter of the new product continue the series, there is a correlation through extrapolation:

1

01

01

1xx

xx

pppp

wherep1, p0 - the price of the assortments that neighbor the new assortment;

xn, x1, x0 - the parameters of the three assortments (the new assortment and the two assortments thatneighbor the new assortment).

Prices adjustment to competition represents a decision where price is considered a given unit and not anaction variable. The application sphere of this practice spreads over competition markets of some homogeneous

products, the markets of raw materials, oligopoly markets of differentiated goods when the firms practice peacepolicy or when they follow the leader. The justification ofusing this method refers to the following aspects:

if measuring real costs is impossible (or difficult), current market price is used, that is supposed to recover thecost and generates a profit that is similar to the profit of the firms that produce the same good;

if this practice maintains harmony within the sector;if demand behavior versus price change can be found out.At price fixing, not only the prices applied on the market will be taken into consideration, but also the

differences in products quality, and the diversity of merchandising conditions.Pricing according to competitors prices implies passing several stages, namely:identifying and ensuring sources of information on production costs and prices applied by competitors, as well as

any other information regarding the respective product;picking and updating data, also taking into consideration the tendencies in price evolution on the national and

international plans;performing prices calculation and their adjustment according to constructive, and / or functional differences;analyzing and adjusting the obtained price according to the products merchandising possibilities etc.In the process of price computing, usually, several priceremedies are applied, as follows:


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remedies for the assignment of differences between quality parameters of the given product, and those of thestandard assortments,

remedies for the estimation of differences of delivery conditions, clearing, assurance, service;remedies related to expressing internal expenses in a foreign currency (in case of import and export).The main methods of prices adjustment to competition are:Adjustment according to average price in the branch. It is used in perfectly competitive market or in

oligopoly where the market price is a given variable, accepted by sellers and buyers. The firms, that use thisadjustment, wish to maintain the price level correlated to average market price level hoping that this price covers thecost. This strategy is mostly used in exports.

Adjustment according to the market leaders price. In this situation it is necessary to determine the type ofthe market leader which means to determine whether he has a dominant position or he is an orientation guide forother competitors. In the first case, the firm has to register rather low costs in order to impose low price on themarket. The competitors have to practice the same prices level. In the second case, smaller firms, that have areduced market share or that have recently entered the competition, will align the prices to be competitive and toresist competition. Increases in price made by market leaders will be followed by increases in price of thecompetitors, and vice versa.

Price cartel. The firms agree on price level, market share and production volume.Price tender. It is used when more firms compete to get a particular contract. Tender is a price offer of the firm

that considers possible prices charged by competitors. Price offers are put into envelopes that are opened duringnegotiations. The contract is offered to the firm that offers minimum price level that sometimes may be even lower

than cost level. Usually price tenders are announced by the State in order to execute some works.16.Price determination based on the balance between cost, demand and competition (Model 3

C).

The process of pricing according to model 3C (cost, demand, competition) assumes a detailed analysis ofendogenous and exogenous factors in correlation with firms objectives in the following stages:

Stage 1: Objectives setting

Any economic agent has to set his objectives. He must have a definite idea of what he wants to obtainthrough manufacturing and selling some products on the domestic and international market, the economic agent hasto understand the role of prices determination in his activity. For example: if the production and merchandisingobjective is to use production capacity excess, price decision may be limited to marginal prices; if projection andlaunching of high-quality products is desired, then price decision may have promotional objectives. Pricedetermination objectives are closely linked to marketing policy objectives. It is necessary to set them in advance and

not only after getting the order.Stage 2: The analysis of mar ket situation

This analysis has to establish superior the limit for price decision based on the demand of a good and on thecompetition nature. There are 3 aspects:

The awareness of market (demand) size supposes gathering information about potential consumers segments,their purchasing power, price elasticity of demand, season, requirements emergency, etc.

The awareness of competition first supposes the identification of direct and indirect competitors. A directcompetitor is selling a similar product, an indirect competitor is selling a substantially different product assigned tothe same consumer or to the same use (coffee or tea, beer or wine etc.). Secondly, the number of the possibilities of

price determination depends on the competition nature. If the market is dominated by several big competitors, theseller will have little elasticity in prices determination and will have to align his prices to competitors prices. In thiscase the seller will try to differentiate the product by design, model, quality, after sale services. If the market ischaracterized by the existence of numerous sellers with a high degree of substitution, no seller will be able to

influence substantially the price.The awareness of market prices means gathering information about a series of the elements connected tomarketing factors (payment terms, discounts, etc.) and about the legislation regarding the price domain, tax and dutysystem, etc.

The most difficult thing within this stage is that data are very difficult to obtain, especially data concerning price.Stage 3: Cost determ ination

Direct and indirect consumptions, fixed and variable costs, as well as the total production cost according to thequantities produced, are determined. The decision on price entails consumptions and expenses structureknowledge, as well as knowledge of their different behavior according to changes in production volume. When agreat weigh in consumptions structure belongs to fixed consumptions, the objectives of price policy will be aimed


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at fixing the price level that will ensure total revenue that will cover the fixed consumptions and managing demandaccording to the maximal production capacity. As far as sales cover fixed consumptions, each marginal unit of the

product sold will generate increases in profit.When a great weight in consumptions structure belongs to variable costs, the price policy will be aimed at

covering these consumptions and increasing per unit contribution margin. By means of increasing the differencebetween average variable consumptions and price, fixed consumptions recoup and increases in profit will bepursued.

The role of cost analysis is not limited just by the fixing supply price, but also by setting the price structureaccording to the market conditions. A special attention should be paid to possible delivery conditions or to

production sales both on domestic and international markets. For example: in case of exports, many deliveryconditions have been established by International Chamber of Commerce and named INCOTERMS. Theyindicate sharing by exporters and importers of costs and responsibilities regarding transportation, expenses,insurance expenses and expenses on customs formalities. When the seller elaborates a price structure, he cannegotiate specific delivery conditions with the buyers. These conditions form the basis of price quotation.

Stage 4: The determi nation of pr ice structure and level (or limit)

The determination of price structure and level is performed in order to estimate the profit that the firm may getby selling its products. At this stage the method of price determination is chosen, and supplementary factors areconsidered as well: market risk, inflation rate, taxes and duties from price structure, allowances offered by dealers,etc.

Prices can be established according to costs, or by summing price elements, according to merchandizing

conditions. As a result, a non-competitive price can be charged while the market condition for the given good is nottaken into consideration. In this case the regressive method is recommended, as supply price starts from the market

price, from which are figured out, by turns, the price components: VAT, profit margin, excise tax (depending on theproduct), average cost of the product, whereafter will result the amount of profit or loss.

If the difference between the market price and cost is bigger, the company disposes of a price reserve and canpractice prices that are lower than the market price. But, before it takes such a decision, it is necessary to clarifycertain aspects, namely: how the competitors would react; if a smaller price would not generate doubts regarding the

products quality; if some costs were not omitted; if after the decrease there will be a possibility to increase the priceetc.

In case the difference between the market price and costs is lower or even negative, the company should answera set of questions like: would the market accept a higher price; are there reserves for cost decreasing; if othersuppliers with more favorable transportation or space conditions can be found etc. In this case, an option would beexamining the possibilities to enter other outlets.

After the establishment of the final price level, respective recording documents are drawn up.Stage 5: The presentati on of pr ice offer

By the price offer the economic agent supplies a potential buyer the exact price level and delivery terms in whichhe is ready to deliver the goods. A price offer should contain:

thanks for soliciting the respective good;clear and concise description of the good;delivery terms and additional costs included in the price;the date of delivery;the period of the offers validity;minimum and maximum quantities of the goods that may be ordered.The nature of the offers is different in various cases. Many offers are sent by telex, fax or Internet. It is possible

to send a blank or an accompanying letter. Some economic agents send their offers in a special blank that includesan acceptance card that a potential buyer may fill in and send back, if he accepts the price and if he wants to make an

order.A written offer should be accompanied by attractive advertising materials. The accompanying letter may includesuch information as: the advantages of the product in comparison with competitors products, other advantages of

payment terms etc. in order to make the buyer accept the offer.17.Price reform in the Republic of Moldova.

Sistemul de preuri ce a existat pn n 1991 s-a caracterizat prin urmtoarele neajunsuri:


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1. ndeprtarea preurilor de nivelul real al costurilor, ceea ce a condus la rezultatenecorespunztoare, concretizate n existena unor uniti, activiti i produse nerentabile, paralel cu realizarea unorrentabiliti exagerate la alte produse, activiti, uniti;

2. ndeprtarea nivelului preurilor interne fa de preurile externe, unele fiind subevaluate iar altelesupraevaluate n raport cu acestea;

3. meninerea neschimbat a preurilor pe perioade mari, neinndu-se seama de raportul cerere-ofert, de evoluia costurilor de producie sau a preurilor externe;

4. necuprinderea n costurile de producie i n preuri a unor cheltuieli justificate economic(cheltuieli cu descoperirea rezervelor geologice, protecia mediului nconjurtor, costul real al apei i al reparaiilorla fondul locativ etc.);

5. n lipsa unor preuri bazate pe aciunea legii cererii i ofertei nu se putea afirma cu precizie ceactiviti sunt sau nu rentabile i nu se putea orienta corect nici procesul de dezvoltare i restructurare a economieinaionale etc.

n procesul de tranziie o ar se afl n faa unei opiuni fundamentale n ceea ce privete preurile, ianume: ori se accept practicarea unor preuri relativ mici i stabile, dar care nu asigur echilibrul dintre cerere iofert, meninnd sau accentund dezechilibrul, ori se accept ntroducerea unui sistem nou de preuri care vaasigura acest echilibru. n vederea echilibrrii cererii cu oferta se poate aciona i n direcia manipulrii cererii sauofertei. Pe linie de cerere pot fi urmtoarele soluii poteniale: reforma monetar, stimularea atragerii economiilor

bneti i acordarea, pe seama lor, de mprumuturi agenilor economici, folosirea unui sistem fiscal care s combatevaziunea i specula. Pe linia creterii ofertei, trebuie acionat n vederea creterii produciei. O alt soluie ar fi

creterea importurilor, dar ea prezint dezavantajul reducerii rezervelor valutare a rii. Astfel, singura modalitatepentru aplanarea dezechilibrelor dintre cerere i ofert a rmas s fie liberalizarea preurilor.

n R.M. crearea unui sistem de preuri specific economiei de pia a nceput odat cu DecretulPreedintelui R.M. 256 din 26-12-1991 Cu privire la liberalizarea preurilor i tarifelor i protecia social a

populaiei i a inclus 4 etape:

Etapa I prima subetap ntre 2 ianuarie 31 octombrie 1992; a doua subetap ntre 1 noiembrie 1992 i 29septembrie 1993;

Etapa II30 septembrie 1993 pn la 22 mai 1994;

Etapa III23 mai 199431 decembrie 1997;

Etapa IVde la 1 ianuarie 1998.

n cadrul primei etape erau reglementate preurile la producia importat, conform contractelor interstatale ncadrul CSI, la producia monopolurilor naturale (energetic, telecomunicaii), la serviciile de transport, la produciade prim necesitate pentru consumul populaiei. Au fost instituite plafoane de preuri la resurse energetice, metale

preioase, chirie, produse de panificaie, produse lactate, ulei vegetal, zahr, sare, medicamente. Din 15 februarie1992 s-au eliminat subveniile la mezeluri fierte, s-au liberalizat preurile la unele produse din carne, iar din 15octombrie 1992 au fost liberalizate preurile la unele produse alimentare (ulei, zahr, carne). Din anul 1993 s-a reduslista produselor agricole pentru care statul garanta preuri minimale, acestea aplicndu-se doar la grne cu excepia

porumbului (iniial fiind fixate preuri minimale la cereale, floarea soarelui, sfecla de zahr, tutun, legume, struguri,animale i psri, lapte i ou). Cheltuielile de fabricaie i desfacere a produciei, clasificarea lor pe elemente iarticole de calculaie, formarea rezultatelor financiare erau determinate de Regulamentul Cu privire la structuracheltuielilor de fabricaie i desfacere a produciei (lucrrilor, serviciilor), incluse n preul de cost i modul deformare a rezultatelor financiare ale ntreprinderilor, adoptat prin Hotrrea Guvernului 340 din 2 iunie 1993. Adaosul comercial aplicat de unitile de desfacere nu depea 20%.

Etapa 2 a ntrodus schimbri eseniale n mecanismul formrii preurilor cu amnuntul care, n afar depreul de livrare i adaos comercial includ deja cheltuielile de transport i dobnda pentru credite bancare. Cota-plafon de 20% adaos comercial a fost nlocuit cu 3 nivele a cotei: cota-plafon 20% (pentru 25 tipuri de produse deprim necesitate), cota plafon 30% (pentru celelalte mrfuri n afar de mrfurile de lux) i cota liber (pentrumrfurile de lux). A fost schimbat baza de dimensionare a adaosului comercial: dac la prima etap ea constituia

preul cu ridicata a mrfii, la etapa a doua preul de livrare, respectiv, preul cu ridicata majorat cu sumaimpozitelor indirecte. Prin Decretul Preedintelui R.M. 185 din 4 noiembrie 1993, n scopul proteciei pieei


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interne, ca element al preului deimport a fost implementat tariful vamal cu cotele de 5%, 10%, 30%, 50% i 70%,urmnd ca din 6 decembrie 1993 unele cote s fie anulate, iar altele reduse de 1,5 3 ori. Din 10 ianuarie 1994 prinDecretul Preedintelui 220 n structura preului de import, n afar de taxe vamale i TVA de 20%, a fostimplementat accizul. De rnd cu aceste, se ridic nivelul preurilor reglementate de stat pentru a reduce dotrile din

buget, are loc liberalizarea preurilor la majoritatea produselor alimentare i tarifelor n transport.

n cadrul etapei 3 au fost liberalizate preurile la pine, lapte, medicamente. Au intervenit schimbrisubstaniale n formarea preurilor la mrfurile ntreprinderilor monopoliste: aplicarea nregistrrii preurilor iargumentarea prin nota explicativ a inteniei de modificare a lor; utilizarea a plafoanelor rentabilitii de 25% i50% i clasificarea agenilor economici monopoliti. Au fost eliminate ori reduse cotele impozitelor indirecte la unir de mrfuri. Prin adoptarea Legii Cu privire la preul normativ al pmntului se garanteaz un nivel minim al

preului de vnzare pentru posesorii de terenuri agricole.

Etapa IVa nceput cu ntroducerea Codului fiscal (titlurile I i II) din 1 ianuarie 1998, conform cruia afost schimbat modul de calcul al venitului. Implementarea standardelor naionale de contabilitate a ntrodusmodificri substaniale n clasificarea i calculul costurilor. Implementarea titlului III al Codului fiscal din 1 iulie1998 a intervenit cu schimbri n termenii de plat a TVA i n modul de calcul al adaosului comercial. S -a revenitla metoda anterioar prin aplicarea cotei adaosului comercial la preul cu ridicata fr TVA.

Potrivit datelor oficiale pn la momentul actual 20% de preuri sunt reglementa te n mod direct de stat,

celelalte 80% fiind considerate preuri libere.Specialitii apreciaz c a avut loc o liberalizare gradual a preurilor, ns, datorit caracterului su de

noutate pentru cetenii obinuii cu preuri mici i relativ stabile, precum i datorit proporiilor modificrilor depreuri, s-a considerat c a avut loc o terapie de oc. Efectele negative s -au manifestat prin rata nalt a inflaiei,reducerea puterii de cumprare a banilor i a nivelului de trai a populaiei. Astfel, n 1992 fa de 1991 IPC a crescutcu 1208.7%, 1993 fa de 1992 cu 1320%, 1994 fa de 1993 cu 587%. Dup 1994 s -a fcut simit tendina sprestabilizare a nivelului preurilor, 1995 fa de 1994 130%, 1996-1995 cu 124%, 1997-1996 cu 112%, 1998-1997cu 108%, 1999-1998 cu 143.7%, 2000-1999 cu 118.4% i 2001 fa de 2000 cu 106.3%. Pentru anul 2003 ratacreterii IPC a constituit 115,3%.

Liberalizarea preurilor a atras dup sine i adoptarea unor msuri de protecie social: acordarea unorcompensaii, prin adaosuri la salarii i pensii, indexarea veniturilor pe baza indicelui mediu de cretere a preurilor itarifelor, alocaii de stat pentru copii etc.

18.The necessity of prices regulation.n cadrul economiei de pia, n situaia fundamentrii deciziilor cu privire la pre, sunt pui nainte de toate

agenii economici, care vnd i cumpr mrfuri materiale i nemateriale, precum i diferite organisme a statului,nsrcinate s asigure echilibrul economic i financiar la nivel macro. Ori de cte ori formarea liber a preurilor nueste posibil sau recomandat, n luarea deciziilor de pre intervine statul.

ntervenia statului n stabilirea, dirijarea i urmrirea evoluiei preurilor este determinat de mai multesituaii sau cerine economice, i anume: penuria de resurse de materii prime i energie, oferta dificitar la unele

produse importante pentru economie i populaie, cu influien negativ asupra cererii i a nivelului de trai alpopulaiei, protejarea produciei autohtone de concurena strin, combaterea unor situaii de monopol sau oligopol,precum i al concurenei neloiale. Cu ct piaa real este mai ndeprtat de concurena perfect, cu att necesitateai eficiena controlului statului, a interveniei lui asupra preurilor este mai mare. n general, intervenia statului ndomeniul preurilor a fost prezent n toate timpurile, fiind mai intens n perioadele de criz economic, declin

economic, sau n timp de rzboi etc. i mai uoar n perioadele de stabilitate economic. Prin amestecul n procesulformrii preurilor se urmrete asigurarea unei stabiliti economice i protecii sociale, satisfacerea unui minim decerine i interese.

Exist dou metode de intervenie a statului n materie de pre (schema 5.1)Metodele controlului direct: stabilirea administrat a preurilor, blocarea preurilor, plafoanele de preuri, limitareamarjei de profit, normele de stabilire a preurilor, declararea preurilor i tarifelor .a.Metodele controlului indirect: cotele de impozitare, controlul asupra masei monetare, sistemul de remunerare amuncii, politica de creditare, reglarea cheltuielilor de stat, stabilirea normelor de amortizare .a.


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Aceste dou metode nu trebuie s se neglijeze, ci din contra, s se completeze, iar eficiena folosirii lor depinde deluarea unor msuri n vederea reglrii veniturilor consumatorilor.

19.The institutions authorized to take decisions in prices formations.Legea R. Moldova 845-XII Cu privire la antreprenoriat i ntreprinderi specific c: ntreprinderile au

dreptul s stabileasc de sinestttor preurile (tarifele) la produsele fabricate, lucrrile i serviciile prestate.n afarde agenii economici i Parlament, competene decizionale privind preurile mai au:

Ministerul Finanelorcu departamentele i direciile de resort ndeplinete msuri privind supraveghereaconcurenei, a negocierii preurilor, stabilete preurile produselor subvenionate i face propuneri de acte normativen domeniul preului,

Ministerul Economieipromoveaz politica statului n domeniul formrii preurilor, asigur organizatoric imetodologic procedeele de determinare a preurilor, promoveaz concurena loial, exercit controlul asuprarespectrii legislaiei antimonopol,

Ministerul Muncii i Proteciei sociale, urmrete corelarea veniturilor populaiei cu evoluia preurilorbunurilor de consum i elaboreaz acte normative referitoare la protecia social a populaiei,

Agenia Naional de Protecie a Concureneicare se ocup cu promovarea concurenei i acord consultaiiGuvernului n ce privete actele normative referitoare la pre. La fel, exercit controlul modificrilor n structura

pieelor de mrfuri, controlul asupra atragerii investiiilor strine de proporii mari, supravegherea circulaieipachetelor mari ale hrtiilor de valoare, controlul asupra formrii preurilor,

Organele administraiei publice locale efectuiaz reglementarea preurilor i controlul asupra disciplinei

preurilor n limitele competenelor sale,Departamentul Statistic organizeaz supravegherea statistic a nivelului preurilor, efectuiaz calculul indicilor

de pre i public informaia respectiv.20.Direct prices regulation methods.

Metodele reglementrii directe presupun controlul nemijlocit din partea statului asupra nivelului sau a unorelemente structurale a preului. Astfel de metode se folosesc pentru susinerea preurilor produselor agricole iagroalimentare, ale materiilor prime de baz, combustibilului i resurselor energetice. Preul fixat n mod autoritarde ctre stat poate s apar ca pre maxim, pre minim sau ca pre subvenionat. La fel, statul controleazadministrativ preurile prin blocarea lor, prin limitarea nivelului marjei de profit sau a adaosului comercial

1.Preul maximeste inferior preului de echilibru, dar practicarea acestui pre modific volumul cererii iofertei, stimuleaz consumul i sporete cantitatea cerut de produs. Aceast situaie poate crea o serie deconsecine:

protecia consumatorilor prin practicarea unor preuri mai mici;reduce cantitatea oferit de productori, care nu sunt de acord s-i vnd produsul la un pre mai mic i potrecurge la stocarea produciei respective, ateptnd nlturarea restriciei de pre. Ca rezultat, poate s apar penuriade produse iar protecia consumatorilor devine una formal, lipsit de coninut, dac acetea nu gsesc produseleieftine pe pia;

vnzarea produselor cu aglomeraie ceea ce presupune pierderi de timp pentru consumatori, timp, care dac ar ficontabilizat i adugat la preul de cumprare al mrfii ar putea rezulta un pre mult mai mare dect preul care s-arfi creat pe piaa liber;

vnzarea preferenial a produselor n funcie de unele criterii subiective, bazate pe relaii personale sprijinite pecontraprestaii, ceea ce face ca efectele dorite de stat prin stabilirea unor preuri sczute s fie anihilate;

raionalizarea consumului de produse pentru care exist deficit pe baz de tichete sau bonuri, ceea ce nseamnc preferinele subiective ale vnztorilor i cumprtorilor sunt nlocuite cu hotrrea organelor de stat de a asigura

procurarea n mod egal de ctre toi consumatorii a unei cantiti fixe dintr-un bun;

apariia pieei negre, pia pe care bunurile se vnd ilegal, la un pre mult mai superior celui maxim impus dectre organele de stat.2.Preul minimse folosete pentru a stimula dezvoltarea i creterea produciei n unele sectoare i este, de

regul, superior preului de echilibru. Pentru a fi stimulativ acest pre trebuie s fie cel puin la nivelul preului deechilibru rezultat de jocul cererii i ofertei. Stabilirea preului minim deasupra preului de echilibru determinapariia unui excedent de ofert fa de cerere. Productorii se vor afla n situaia de a acorda anumite faciliti(rabaturi) cumprtorilor pentru a-i spori volumul vnzrilor. n asemenea situaii se recomand ca statul s adoptemsuri prin care s asigure condiii de desfacere a surplusului de ofert, fie prin achiziii proprii, fie prin acor

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