Competitive discount
The competitive discount determines the reduction in consumers willingness to pay as a result of competitors offering a product or service at a price under the Perceived use value. It can be helpful to discriminate between:
- Competitive environments
- Monopolistic environments
In a monopolistic environment the VPF is rather simplistic. Here the Perceived use value represents the maximum amount he/she is willing to pay for the product. In a perfectly monopolistic environment, producers are able to capture (almost) completely the value created provided that there (1) no other source of supply and (2) they are able to discriminate on price.
In a competitive environment the consumer surplus by rival companies determine the customer's choice. The willingness to pay is reduced by the amount of consumer surplus offered by the strongest competitor or the best substitute product.
Part of: M8-S3 - Reading - Strategies for E-Business - Chapter 8 - Creating and capturing value through e-Business strategies
