Competition generally drives down prices, but the pricing of product depends on the following competitor driven factors.Actual or potential competition: The presence of an existing alternative product usually lower prices, whereas the threat of future products might actually drive up prices of the existing product in a bid to maximize profits in anticipation of reduced profits when the competing product arrives in the market.Positioning: Competition drives down prices only when both products compete for the same market segment. For instance, a new budget entry level car will not challenge a high end luxury car.Strengths and weaknesses of competitors: The presence of strong competitors with ability to match the incumbent product in both quality and depth results in reduction of prices, but weak competitors with low quality, low marketing budget and low coverage will not lead to price wars.The collaborators in the making and selling of a product, be it distributors, suppliers or other alliance partners influence pricing.Shut down of a supply source might lead to raw material scarcity and increase product price whereas availability of multiple suppliers or new raw material source might lead to reduced raw material prices, resulting in lesser product price.Inefficient distributors might create artificial scarcity of essential products and jack up prices whereas a wide and efficient distribution channel lead to reduced prices owing to increased sales, and customers acquiring better product knowledge.Political regulatory environment: Government policies such as laws preventing cartelization, taxation, import duties all have an impact on pricing.Economic environment: the general business cycle, the rate of inflation, interest rates and other economic factors all affect product demand in a big way. For instance, decrease in interest rate lead to more people taking housing or vehicle loans, increase demands for houses and cars.
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