Competition-Driven Pricing

Competition-driven pricing is a method of pricing a product by comparing the price being charged for a product or service to the price a competitor is charging. Think: The Walmart Slogan, "Shop more; spend less." Or...something like that.

Absolute commodities like agricultural products are extremely sensitive to price changes. Like...if one farmer can deliver basically the same tomatoes at 2 cents a pound less than the competition, he’ll run the tables and win “all” the contracts until he runs out of red sauce.

Middle-Aged MacDonald (Old MacDonald's son) asks the guy at the local grainery “What’s the going price of a bushel of corn?” The grainery guy responds “The average price per bushel is $3.40, ranging from $3.10 to $3.70 in the past month. Henry just sold his for $3.35 for get some cash.”

MacDonald can sell his corn at the same price as Henry, wait for the high price of $3.70+/- to return, but risks corn going lower if a lot of farmers follow Henry’s lead and sell at $3.35 or lower. MacDonald then has the ability to price his corn with the knowledge of what the competitors are getting locally. E-I-E-I-Oh, yes.