Текст книги "Marketing and Pricing"

THEME 10. PRICES IN THE MECHANISM OF THE ECONOMY

1. The economic content of prices

Price is the monetary expression of the value of any goods or services; economic category, which serves for the indirect measurement of the pro-moth on production of socially necessary labor time, the sum of money for which the seller is willing to sell his goods, and the purchasers are willing to buy it.

Price performs the following functions:

1. Balancing: price forms the major proportion of the economy, primarily between supply and demand.

2. Planning and accounting: prices are used by enterprises and governmental agencies to develop plans and projections.

3. Distribution and redistribution is produced in the distribution of national income and GDP between enterprises, the industry-mi, regions.

4. Information: bringing to all the participants of economic relations information about market conditions and market prices.

5. Stimulating is in essence encouraging or deterring effect rates of production and consumption of different types of goods. Price stimulates the manufacturer of the quantity held in it arrived.

2. Factors that impact on prices

As a quantitative category price is influenced by many factors (internal and external).

External:

The political and economic situation in the country;

Availability of key resources;

The level of income and savings;

Extent of government regulation of the economy and prices;

General rate of inflation;

The nature of demand;

The presence and level of competition;

Improvement of tax legislation;

Foreign economic policy of the state.

Internal:

Special qualities of the product;

Mode of production;

Organizational and technical levels of production;

Focus on a variety of buyers;

Cycle time of goods movement;

Service organization;

The company’s image;

Advertising.

3. Price system

All current prices in the economy are interconnected and form a single system that is in constant motion and development under the action of a variety of market factors.

The price system is a collection and variety of operating in the economy of prices, consisting of the individual subsystems and blocks, interconnected and interacting by the «principle of communicating vessels». «The principle of communicating vessels» is that the change in price in one of the main blocks of the system fairly quickly transferred «by the chain «in all other blocks prices. A relationship and interdependence are basing-camping, first, on the fact that the price formation takes place on a methodology based on a logical and, secondly, that all market actors are interrelated less forward and form a single, economical package.

Traditionally, prices are divided into species such as selling, retail, procurement and tariffs.

The price system is characterized by the following parameters: the level, composition, structure and dynamics.

Level is the absolute quantification of rates in the money.

Structure is certain elements of the price ratio as a percentage or fraction.

Dynamics is the change of prices over time.

4. Classification of prices

Utilized species and varieties of prices can be classified according to symptoms of ovarian cancer do:

• Depending on the stages of product distribution:

• Selling price of the manufacturer is the price applicable in the republic market in payments between manufacturers and consumers, with the exception of the population.

• Selling prices of the wholesale company is formed in the sale of products by intermediary or supply and marketing organization to other businesses, customers.

• Retail price at which the goods are bought by population. It is the final consumer price.

• The method of establishing:

• Regulated prices are subject to various restrictions imposed by government authorities, local executive and disposal-performance bodies.

• According to the territorial distribution:

• Unified prices are all over the republic.

• Local prices.

• Taking into account the conditions of supply:

• Depending on the market on which the products are delivered.

• Price for the domestic market.

• Prices for the foreign market.

• Depending on the timing of the action:

• Long-term (permanent) will be installed without limitation their validity.

• Moving rates can be used in long-term contracts for the supply of goods.

• Step rates can be set for products with the phases of its life cycle.

• Seasonal prices are determined differentially by the seasonal period of the year.

• Planning and settlement prices are used in internal production planning in large enterprises between shops and offices.

• Reference prices are used to estimate the movement of production at the enterprise, depending on the chosen and speaking in the order of business accounting policy.

• Producer prices of products are used in the statistics and characterize the change in the value of products directly in production.

• Consumer prices of goods and services purchased by the population for end-use consumption of non-productive

• Prices for the current period and comparative prices

THEME 11. State regulation of prices in the Republic of Belarus

1 The need for state regulation of prices

The most important tool of state regulation is the financial-hand, monetary-credit policy.

An integral part of this policy is attempts to influence the state of the economic situation of individual commodity markets, with the aid of price control.

An important place in the economic transformations takes questions reasonable to mix with the state regulation of prices. Experience shows that almost all countries of the world to a greater or lesser extent interfere with the process of pricing, limiting market equilibrium.

State regulation of prices in any economy can with the aid of the legislative, administrative, budgetary and financial forms of action to influence the prices so as to contribute to the development of a stable economic system. It allows to overcome the drawbacks of the market system and related social inequality and unequal income distribution, rational use of natural resources and environmental protection, development of areas necessary for thesociety in general (education, science, culture, health care).

Government regulation of the economy is government activities that through various methods, techniques, forms and methods achieve their social and economic goals. This definition can be applied to the definition of state regulation of the pricing process, since the price is one of the main instruments of influence on the state of the national economy.

By implementing price controls, the government aims to:

• slow down the inflationary rise in prices as a result of the depreciation of money;

• to prevent the inflationary rise in prices as a result of sustained deficit, soaring prices of raw materials and fuel operated, monopoly of the producers;

• contribute to the creation of normal competition, orienting to the achievements of the scientific – technical progress;

• achieve the necessary relations and the development of production;

• hinder the growth of wages in proportion to the price;

• subsidize the production under the control of the state;

• protect the backward industries from foreign competition (especially agriculture);

• to promote economic activity;

• mobilize the budgetary resources needed to ensure the socio – economic activities.

The most important task of government regulation is the achievement of certain social outcomes, in particular, the maintenance of the subsistence minimum, the possibility to purchase a sufficient number of nom essential goods.

The optimal combination of the state is the direct and indirect methods of regulation.

2. Methods of State regulation of prices: indirect and direct

There are two forms of state regulation of prices:

1. Indirect Regulation (indirect methods) includes measures impact on supply and demand, competition and other factors macroeconomic balance, and do not directly affect the level of prices, including:

• antitrust laws;

• support for small businesses;

• deregulation and privatization;

• reduction of the budget deficit;

• tax policy;

• grants and subsidies, and others.

2. Direct regulation (direct method) is carried out by introducing regulated prices, such as:

• a fixed price;

• price limits, which are set through:

– «price ceiling»;

– «price floor»;

– «price band».

Direct methods of state regulation of prices directly affects the prices by regulating their level, norm-setting profitability or regulatory elements that make up the price, or other similar methods.

Indirect methods are shown in the impact of the state is not on the prices themselves, and on the factors that influence the pricing, which are macroeconomic in character. Indirect measures include such means of reforming the economy and improve the management mechanism, as the adoption and improvement of antimonopoly legislation stimulation of small business, a reasonable tax policy, privatization, the provision of grants and subsidies, the reduction of the budget deficit, the control and regulation of income.

3. The policy of state regulation, carried out in the Republic of Belarus

Pricing policy as part of the general economic policy of the state is aimed at addressing those priorities that face society at various stages of its development. At the present stage of development of the economy the priority of the state is economic stability in the country is carried out pricing policies designated to perform the forecast indicators of socio-economic development, the stabilization of the price situation, reducing the rate of inflation, prevent deterioration of the living of the population.

Legal basis for public policy in the area of pricing in the country, as well as the scope of the free and regulated education, the powers of state bodies exercising regulation of pricing and control over them, were laid down in the law of the Republic of Belarus «On pricing.» The same document provides for the rights, obligations and liability of pricing into which the companies are legal entities, entrepreneurs, republican and local governments.

In accordance with the Law of the Republic of Belarus «On pricing» the basic principles of pricing are:

• a combination of free and regulated prices (tariffs);

• segregation of subjects pricing for the establishment and regulation of prices (tariffs);

• establishing regulated prices (tariffs) for goods (works, services) at a level ensuring economic entities covering economically justified costs and to be sufficiently advanced to profit of reproduction including government subsidies and other measures of state-government support;

• State control over observance of the existing order of pricing education, set standards, and regulated prices (tariffs).

Regulated prices (tariffs) in the Republic of Belarus are applied to:

• goods (works, services) of economic entities holding dominant position in the markets of the Republic of Belarus and included in the state register;

• isolated socially important goods (works, services), the List of concrete are determined by the President or on behalf of the Council of Ministers of the Republic of Belarus is.

Republican government, regional and Minsk executive and administrative government within of powers granted to them by law, exercise direct (administrative) regulation of prices (tariffs) by establishing:

• fixed prices (tariffs);

• marginal prices (tariffs);

• limit commercial premiums (discounts) to the price;

• marginal profitability ratios used to determine the amount of profit to be included in the regulated price (tariff);

• the order of the definition and application of prices (tariffs);

• declaration of prices (tariffs).

Fixed prices (rates) are installed in a pronounced the monetary value and limit prices (rates), the amount of which is limited to the upper or lower limit applicable in the Republic of Belarus:

goods (works, services) of economic entities holding dominant position in the markets of the Republic of Belarus and included in the state register;

some socially significant goods (works, services), which are determined by the President of the Republic of Belarus or on behalf of the Council of Ministers of the Republic of Belarus.

The government has resorted to these types of state regulation of prices as to protect consumers, seeking to ensure a certain standard of living and to protect producers by promoting healthy competition.

Marginal levels of profitability, are mainly used in pricing for products, goods (works, services) of dominant producers in the markets and included in the state register. The ceiling limits the profitability of the mortgaged in yen percentage ratio of profit to the cost (total cost) and thus prevents overcharging.

Limit codes restrict the sale prices by the average size predictive values of inflation, calculated on the basis of the consumer price index. It should also be noted that the change in the selling prices in the downward effect of threshold does not apply. The decrease in selling prices can be accomplished with a mechanism to provide discounts in due course.

Limiting trade margins, which are an integral part of the premium wholesale level, are established for sales organizations (wholesale and retail of new intermediaries) to regulate the sphere of circulation. Although limiting trade margins is determined by the laws, this type of direct state regulation applies to resellers all over the place (except for goods for which trade ring (wholesale) surcharge to sales prices are applied). Thus, for the formation of wholesale and retail prices the wholesale and trade allowance are charged to the sale price of the enterprise, the manufacturer’s or importer, excluding VAT, which does not exceed, as a rule, 20% and 30%, respectively. Moreover, trade allowance account is paid wholesale supplement.

Declaration of prices (tariffs) involves the registration of prices (tariffs) by the producers (with the exception of commercial organizations with foreign investments and individual entrepreneurs paying the single tax, or use the simplified tax system) to the relevant government authorities.

Establishing the procedure for the formation and application of prices, government limits the freedom of the subject of pricing, prescribing them to form bidding on a variety of goods (works, services) in accordance with established procedures. All the variety of requirements can be classified according to several criteria. The procedure of forming and application of prices is the following:

On the subjects of pricing:

• enterprise-producers;

• company-importers;

• wholesale intermediaries;

• retail intermediaries;

• exporting enterprises;

• businesses with a variety of industries;

• enterprises which hold a dominant position in the markets;

Pricing for the units:

• the products, goods (works, services) of domestic production (origin);

• the products, goods imported (origin);

• on alcoholic beverages;

• for products catering;

• for meat and dairy products;

• for medicines, medical devices and of medical equipment, charges for medical services;

• the transportation of goods and passengers by road, etc.

It should be mentioned the importance of the legal requirement for justification of prices, according to which the economic entities that form selling prices (tariffs) are required to justify their economic calculations of the (calculation with a breakdown of cost items). Economic calculations must be recorded on paper and signed by persons who are responsible for the correctness of the allegations selling prices (tariffs). Although the requirement for economic justification of prices is not the kind of direct government regulation, the attention paid to this stage pricing by the public authorities, allows putting it in a number of species considered.

5. Antitrust laws

In almost all countries there is a group of industries, derived from the application of the antitrust laws. This is the so-called direct regulation of the industry in which the government specifically establishes and protects the dominant producers, regardless of the form of ownership. They are also known as «natural monopolies.»

Natural monopolies are the industry in which long-term average costs reach the minimum only when one firm serves the entire market as a whole. In such industry minimum efficient scale of production of the commodity is close (or exceeds) to the amount by which the market demands at any price sufficient to cover production costs. In such a situation, the separation registration between two or more companies will lead to that the magnitude of each output is small inefficiently.

The sphere of natural monopolies in the country includes the transportation of oil and gas pipeline, electricity supply, rail-road transport and wire broadcasting, postal services, water-, electrical-, heat– and gas supply; urban passenger electric and automobile (except taxis) services provided by transport terminals, ports, airports, provision of telephone and telegraph communications. In the Republic of Belarus there are 55 such associations.

Impossibility to compete in the natural monopoly, and the paramount importance of enterprises in these sectors for the livelihood of the population, require special approaches to their management.

Duration of the process of privatization and decentralization in the national economy based the necessity for regulation of artificial monopolies.

Artificial monopoly in Belarus came into existence under state-owned monopolies, the total nationalization, lack of competition, as a consequence of the rigid centralization of management, progressive concentration and increased specialization.

Monopoly is characteristic of more than 20 industries of the economy of the country. These include: mechanical engineering and metal working, chemical, timber, woodworking, pulp and paper, fuel, metallurgical, light and food industry, building materials industry, industry and social infrastructure.

From the point of view of its monopolization industrial production is characterized by:

preserving the monopoly of state property;

excessively high level of concentration of production and the lack of development of small business, which makes the competitive landscape, the presence of a significant number of monopoly enterprises, products which is 35—100% of the relevant market;

saving the modified administrative monopolies (associations, ministries).

To select a form of regulation, it is necessary to find out, if the market of a product can function properly: if import freely comes from other countries or regions, can the potential market participants free leave it in response to price signals, whether the antitrust agency counteracts the behavior of large enterprises. If these conditions are met, then the free high prices will attract new manufacturers.

In Belarus, the fact of dominance is established by the share market, which has a plant. In this case, the dominant position means exceptional position of the company on the market that allows it to dictate terms to consumers and competitors, hamper access to the market for other companies. If one company owns more than 30%, and two – more than 54% of the market, these companies are recognized monopolies and are included in the National Register of economic entities. They have a dominant position in the markets of the Republic (regardless of ownership).

The registry is comprised of three sections. The first section includes a list of enterprises belonging to a natural monopoly, the price of products and services set by government authorities. The second section consists of the enterprise, the activities of which are monitored by government antitrust authorities. If the enterprise included in this section, would be allowed the abuse of dominant position, such a company is excluded from the second section and is included in the third. The third section consists of businesses, which are subject to government control and regulation of individual activity parameters, including price. Each section of the registry contains two subsections: republican, including enterprise-monopolists on the national commodity market, and local, consisting of the monopolistic enterprises in local product markets.

Depending on the type and purpose of the goods produced by the enterprise-mi-monopolists, the following types of price regulation: setting a limit standard of profitability, limiting the level of prices and the level of free declaration of prices (tariffs). The last is a recording of prices in the organs based pricing by enterprises of their detailed justification (justification in the submission of prices costing, profit, taxes, and the explanatory note).

To overcome the monopoly it necessary to make pricing «transparency». This means that any product or service must be the same for all potential buyers the price at any point in time (with the exception of objective factors leading to differences in the conditions of the supply, sale, payment).

By the abuse of a dominant position on the market, monopoly prices and the conclusion of anti-competitive pricing of the agreements are established. Under the monopoly price is understood the price that stably deviates from its potential level in a competitive market, or economic entity colluded enterprises to implement their economic interests at the expense of the abuse of monopoly power.

Monopolistically high is the price, which is set in order of obtaining profits and (or) reimbursement of unjustified costs at the expense of the economic interests of other businesses or citizens.

Monopolistically low price is that, when strong demand due to the deliberate reduction of income (profit) in the short period impedes access to the market to other companies and thus restricts competition in the market for a certain product.

Monopsony is the low price set that dominates the market for a particular product as a buyer to obtain profits, and (or) unreasonable compensation costs by the supplier.

The price mechanism is the regulation of monopolies that can effectively carry out its anti-inflation, crisis management role, being an organic integrated into the economic mechanism, which focuses on the synchronous implementation of structural and institutional reforms, the reform of fiscal, monetary, and export-import policy, market labor. Among the most important components relates and the development of competition.

As international experience shows, the competition identifies not only the leading enterprises that have managed to maintain and expand its market positions due to better quality, lower prices, but also the determination of the weakest, the outsiders who are not able to support economically efficient production and to leave the market.

Monopoly enterprises that are exempt from state price regulation should be balanced and economically viable monopolization. De-monopolization is a time-integration (separation) of economic entities with dominant position. The main thing in monopolization is increasing the number of companies competing in the market, competitors are usually small in size, but have an impact on market conditions.

De-monopolization of the economy suggests that businesses can freely sell their products to anyone needing it to consumers, and the consumer has the choice of supplier products.

One of the most important aspects of state regulation of prices for the products of the monopoly is to create a state system of pricing information and ensure all businesses periodic information (daily, ten-day, monthly) on the prices of goods and their actual sales volumes, and the information should be free and accessible.