Price Influencing Factors

Price Influencing Factors

1.    Demand & Supply

Demand will rise with the decrease in price, while supply will rise with increase in price (supplier is more willing to supply more at higher prices). Price of product will be the equilibrium i.e. supply=demand. This is price where supplier interested to sell & customer is willing to buy.

2.    Size of the firm

Some large produce take the decision about the product prices and whole market follow that price. Those firms are known as price maker and small firm who follow or take the price set by large producer are termed as price taker.

3.    Cost

Third price influencing factor is product cost. Every organization make product for profit, therefore a certain margin is added to the cost for price determination. Therefore cost is one of the vital price influencing factors.

4.    Income of Customer

Fourth price influencing factor is income of customer. When income of customer rises, demand of the product increases, and there is tendency of increase in price due to shift in demand curve.

5.    Availability of Substitute

Fifth price influencing factor is availability of substitute product. In case of substitute product, customer may shift to another product and therefore unreasonable increae in price is not expected.