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Definition: Competition-based Pricing
Various factors can be taken into consideration while pricing a product. These include one’s own cost of producing the product, the forces of demand and supply, or the competitors’ prices. Competition-based pricing is the pricing mechanism wherein prices are set in accordance to the prices of the competing products.
The prices may be set in line with those of the competitors so that the company does not face any competitive disadvantage due to its price.
This can be advantageous because people often find out the going rate/normal rate of similar products before the purchase. However, it can add to disadvantage if a higher quality product is priced at a lower price just be in line with the prices of the competitors.
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