Two Selling Price Strategies in a Monopoly Situation

by David Gaudreault, Serial Entrepreneur, Online Marketer and Personal Branding Passionate

In a monopoly situation, your selling price strategy is highly related to your marketing strategy. Maximizing profits don’t necessarily mean that you target the entire market. It may be more profitable to maintain the selling price at a certain level where you maximize the profits. It means you may voluntarily maintain a selling price to a standpoint where your product will not be financially accessible to the entire market.

When a company faces such a situation of monopoly there are various strategic approaches that can be considered. Here are two approaches:

    1. Decrease the price to the lowest level required to reach the highest volumes of buyers, potentially 100% market. You decrease your profit to strategically acquire more market shares. This strategy worked well for Microsoft. They quickly realized that adoption was the key in their business. When their users got used to their operating system they didn’t want to switch to another one and go through the steep learning curve again.
    2.  Sell at the selling price required to optimize your dollars of profits. This strategy is effective to create scarcity as many buyers can’t afford your products at your determined selling price. But you still generate the same amount of dollars in terms of profits. It also creates a perception of higher quality. Lower production batch size also means smaller infrastructures, fewer employees dedicated to the production and more dedicated to R&D. As you can deduce, Apple used this strategy to build a strong high-end brand and a very powerful company. In the used case represented in the graph, we can clearly see that gaining about a third of the market at a selling price just under 40$ per unit generate the highest profit. So there is no need unless for strategic penetration, to decrease the price further as it will actually decrease your overall profits
Maximizing dollars of profits

I don`t know if you understand this graph, but what it shows is that your costs represented by the orange line are fixed (we don`t consider any volume savings in this example), then as you decrease the price (blue line), the sales volume increases and consequently your profits increase as well (grey line) simply because more people can afford your product. But at some point, your profits reach a breakpoint where the sales continue to grow but the profit margins become so low that the remaining dollars of profits (profits = sales – costs) start decreasing even if the sales are still increasing

If you are in a monopoly situation, your pricing strategy will have an impact on your future growth, so you are better to properly consider the question and make the right choice right from the start. Good luck!

If you are interested, please subscribe to my Facebook page and YouTube channel “David’s way” where I post weekly videos featuring more business ideas, pieces of advice, technical tutorials, Q&As and much more.

Who is David Gaudreault?

David Gaudreault Bio - David's Way

I'm an entrepreneur, a maker, an online marketer...and Personal branding passionate.

I help entrepreneurs develop two essentials for building a successful startup: (1) building a strong personal brand and (2) building solid foundations of passive incomes to gain professional freedom.

I also help entrepreneurs find their big ideas, execute them right, impact millions with their businesses, and change the world.

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