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What Is Flexible Pricing?

The study of flexible pricing can help explain the supply and demand of certain actions in an economy.
A construction business often provides bids to customers for various projects.
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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 04 November 2014
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Pricing strategies are practices companies engage in to sell the most products at the most reasonable price. Flexible pricing generally indicates a company is open to some price bargaining for goods or services. Buyers and sellers use this practice to get the best price in order to purchase more items or save money. In economics, flexible pricing may be a manner in which an open market adjusts the price for goods or services to offset short or long-term product shortages or overages. The study of this pricing method is capable of explaining the supply and demand of certain actions in an economy.

Some companies sell goods with the idea of flexible pricing in mind from the very start of business. For example, major appliance sellers or automotive dealers typically have some flex in their prices. Negotiating with buyers in order to obtain the most sales possible is common in these companies. The main purpose of such pricing strategies is to sell the most goods in a highly competitive market. For example, reducing a product’s price by a certain amount can induce sales more than another company.

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In economics, flexible pricing can throw off the basic supply-and-demand curve. This curve notes the selling price equilibrium at which a company can sell the maximum amount of goods at the most reasonable market price. When a company engages in flexible pricing, it alters the equilibrium point for the supply-and-demand curve. The result is a higher demand for goods when the price goes down. Insufficient supply in the long run can result in the shortage of goods unless a company is attempting to sell out of a certain product.

Negotiating prices is a common practice for certain service-related industries. Here, the supply-and-demand chart is not always able to ascertain an equilibrium point. For example, a construction business often provides bids to customers for various projects. Though the company attempts to make a competitive bid, it has no idea what the other bids are from competitors. Therefore, the construction service may offer to negotiate its bid in order to obtain the business and still earn some profit from the lower price.

Companies that consistently engage in flexible pricing may find it difficult to stop this practice. Consumers will come to expect the pricing flexibilities and often negotiate for goods and services regardless of the item. When a business changes its pricing strategy, the result may be consumers who change their buying habits with the business.

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