Pricing policies in an oligopolistic market: A system dynamics study. A study of the design of pricing policies in a manufacturing firm, with specific reference to the synthetic fibre industry.

Abstract

The objective of this thesis is to investigate and describe components of pricing system which influence the dynamic performance of a price leader manufacturing firm in an oligopoly capital intensive industry producing an identical intermediate product (s). The synthetic fibre industry is chosen as an illustrative case upon which the discussion is built. However, this work could generally be applied to a wide variety of organizations and situations. After discussing the suitability of system dynamics to the formulation of long-run pricing strategy, a model of the pricing system is constructed by using this technique. The behaviour of this system is examined in terms of feedback loops. That is to illustrate how the characteristics of these loops and the interaction among them affect the dynamic behaviour of the system, and how this behaviour can be improved via changing the components of these loops and/or their structures. The improved system is simulated under different external disturbances, certain parameter changes, and different pricing control policies. The simulation shows that the design of a set of robust pricing policies makes the system insensitive to external disturbance and error in parameters. It also shows that the ability of the firm to attain its growth and profitability objectives is affected by the chosen control pricing policies. Some potential applications of the model, particularly, as planning and training tools are highlighted. It is concluded that System Dynamics is an appropriate approach to the formulation of the long-run pricing strategies.