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The pricing decision

6.6 Controlled pricing

A significant proportion of the previously nationalised industries in the UK have been
‘privatised’ into the private sector, with a constraining influence usually called the
industry ‘regulator’.

Many of these companies are in a largely monopolistic situation and so regulation of
these industries was perceived as desirable.

Regulation largely takes the form of controlling price so that the monopolistic
companies cannot exploit their unique position. The regulators use selling price as
the means of controlling the volume of supply in the industry.

They may also decide to specify the quality of the product or level of service that
must be achieved or to prohibit the company operating in certain sectors.

When an industry is regulated on selling price, the elasticity is zero. No price change
is allowed. Not only does this mean that ‘small’ customers pay less than they
otherwise would, but large customers pay more than one might expect under more
competitive positions.

In recent years, all of the monopolistic industries have introduced some kind of
discounted price for very large customers, which is beginning to allow genuine
competition to enter the market. Gradually other billing companies have been allowed
to enter the market and so price has become more flexible.

Illustrations and further practice

Now attempt example 6 ‘Pricing Strategies’ from Chapter 8.

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