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Pricing in a volatile market.

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Introduction

Price case Pricing in a volatile market Questions : 1)What are the main causes of price volatility in a market? To what extent and how have this general causes applied in the pulp and paper market? First of all the fragmentation of the market causes prices to be volatile. Indeed a unique policy can not be set up and a sort of jungle's law is created. Each producer adapts its own prices as regard its operating costs, investments, volume of production.... More over the working rules are different from one country to another and standards of living are world's apart so it can easily explain the gap between two prices. As no single producer has a large production compare to the others, it can not impose its prices to the market and that is why it is obliged to cope with. The volatility of the market is also created by the gap between a so to speak prosperity period during which the producers invest and the second period when capacity created is too much compare to the needs. ...read more.

Middle

They can be able to have a real power to decide prices. The joint ventures can also allow the producer to share their necessary investments or simply to delocalize their production in countries where operating costs are much lower. It was the case for a Swedish company Stora which entered into a joint venture with a Brazilian partner with a view to building a production plant in Brazil. - (B) their customers The consolidation in the industry reduces the differents choices. The number of suppliers because of their new concentration is reducing, that is why customers can not make play competition as they were used to doing. More over as the number of companies is decreasing we can think that prices will grow so the customers will probably be obliged to follow this trend by increasing their own prices. Concretely if the paper's price is high, the newspaper might be expensive. ...read more.

Conclusion

He may also lose the confidence he had on the product. The only interest a customer may have in price volatility is, of course, when prices decrease, but only if it concerns involving purchases ; we recently saw that a high volatility in petrol, for instance, has no real impact on the consumption of petrol by the customers, because it is nowadays a necessary purchase. Then price volatility can be very dangerous for the customers. First of all the forecasts are impossible if the paper's price is constantly varying. For example a newspaper or a magazine depends daily or monthly on this price. If the paper's price suddenly rockets, how can the magazine for example cope with without revaluating its price to sell... But it also mean that the new price can cause a lot of readers to give up selling this title. It also can create a vicious circle. ...read more.

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