Price support

(noun)

A subsidy or a price control with the intended effect of keeping the market price of a good higher or the quantity consumer higher within a market.

Related Terms

Examples of Price support in the following topics:

  • Price Supports

    • Price supports are subsidies or price controls used by the government to artificially increase or decrease prices in the agriculture market.
    • However, the government may implement price supports that artificially consume some of the consumer surplus (in , this is 200 units).
    • Agricultural economics is a highly complicated market as a result of these price supports and controls, particularly from the perspective of subsidization and price control.
    • This chart, in conjunction with the one below, illustrates the way in which price supports can alter supply and overall consumption.
    • It demonstrates the effect of implementing a price support on a basic supply and demand chart.

  • In the 1980s and 1990s

    • The law reduced support prices, and it idled 16 to 18 million hectares of environmentally sensitive cropland for 10 to 15 years.
    • The new law retained high and rigid price supports for certain commodities, and extensive government management of some farm commodity markets continued, however.
    • The law also ordered that dairy price supports be phased out.
    • Price supports for peanuts and sugar were kept, and those for soybeans, cotton, and rice were actually raised.
    • Under the new law, government supports would revert to the old system in 2002 unless Congress were to act to keep market prices and support payments decoupled.

  • Settling the List Price

    • A list price must be close to the maximum price that customers are prepared to pay and yield the maximum profit for the retailer.
    • Pricing is a key variable in micro-economic price allocation theory and part of the four "P's-" of the marketing mix; pricing, product, promotion and place.
    • The manufacturer's suggested retail price (MSRP), list price or recommended retail price (RRP) of a product is the price which the manufacturer recommends to the retailer.
    • ), support the product positioning and be consistent with the other variables in the marketing mix.
    • A good pricing strategy is one that strikes a balance between the price floor (the price below which the organization ends up in losses) and the price ceiling (the price beyond which the organization experiences a no demand situation).

  • Subsidies and Income Supports

    • When governments want to ensure their citizens have access to healthy foods at reasonable prices, a variety of governmental supports are provided to the industry to ensure it maintains low costs of production and high output.
    • This is generally in the form of subsidy and income supports, which alleviate some competitive dynamics and operating expenses to maintain reasonable price points in the market economically.
    • These subsidies play a large role in enabling higher supply at lower price points, supporting the domestic agricultural industry.
    • Nutrition: Another interesting side effect of subsidies and the artificially reduced price of food is obesity and overeating.
    • Environmental Implications: As food prices reduce distribution increases, thus driving an environmental externality which already existed even further.

  • Predatory Pricing

    • Predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market.
    • However, It is usually difficult to prove that prices dropped because of deliberate predatory pricing rather than legitimate price competition.
    • And even if they cannot, bankrupcy does not by itself eliminate the fallen prey's ability to produce: the physical plant and people whose skills made it a viable business will exist, and will be available - perhaps at very low prices - to others who may replace the fallen prey once supra-competitive prices set in.Critics of laws against predatory pricing may support their case empirically by arguing that there has been no instance where such a practice has actually led to a monopoly.
    • However, this does not support the idea that the new virtual monopoly could raise and sustain prices at monopoly levels, even though there are certain barriers to entering monopolized markets that could, in theory, prevent the entry of competition.
    • Low oil prices in the 1990's were considered a case of alleged predatory pricing.

  • New Product Pricing

    • Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers.
    • Low prices act as a barrier to entry.
    • This can create critically important enthusiasm and support in the channel.
    • A penetration strategy would generally be supported by the following conditions: price-sensitive consumers, opportunity to keep costs low, the anticipation of quick market entry by competitors, a high likelihood for rapid acceptance by potential buyers, and an adequate resource base for the firm to meet the new demand and sales.
    • A skimming strategy would generally be supported by the following conditions:

  • New Product

    • What price level should be set in such cases?
    • Penetration pricing in the introductory stage of a new product's life cycle involves accepting a lower profit margin and pricing relatively low.
    • Price skimming involves the top part of the demand curve.
    • A penetration strategy would generally be supported by the following conditions: price-sensitive consumers, opportunity to keep costs low, the anticipation of quick market entry by competitors, a high likelihood for rapid acceptance by potential buyers, and an adequate resource base for the firm to meet the new demand and sales.
    • A premium product generally supports a skimming strategy.

  • Changes in Pricing

    • Support a product's positioning so that it is consistent with product, promotion and placement
    • If manufacturing costs go up due to the rise in price of some raw material, then prices will need to rise as well.
    • Price will always vary from market to market.
    • Natural resources, such as oil, may also fluctuate in price, changing the price of the final good.
    • The price of oil is a factor is the prices of many goods, as increasing oil prices raise the transportation costs of these goods.

  • Decision Support Systems

    • American Airlines produced a DSS that helps decide how much to overbook and how to set prices for each seat so that a plane is filled and profits are maximized.
    • One example of this is a decision support system (DSS) .
    • Decision support systems can be developed to support the types of decision-making faced by managers in specific industries such as the airline and real estate industry.
    • For example, American Airlines produced a DSS that helps to decide how much to overbook and how to set prices for each seat so that a plane is filled and profits are maximized.
    • Decision support systems have become critical and useful across all types of business.

  • Evaluating Policies

    • Agriculture requires a vast support system and a great deal of oversight, addressing industry threats and utilizing policy-based tools.
    • Agriculture requires a vast support system and a great deal of oversight, as the consumption of grown foods poses a huge safety threat alongside a critical need for the health and survival of a civilization.
    • Price Floors/Ceilings: Price floors provide a minimum price point for a given product while price ceilings create a maximum price point.
    • These are used to ensure appropriate pricing in a given industry (see ), and are often used in agriculture to control price points.
    • This is useful in controlling food prices, reducing waste, enabling efficiency and avoiding biosecurity issues.