Economics Strategic Pricing

To:       Pricing Manager, Central State RegionFrom:   Vice President, MarketingRe:       Strategic Pricing DecisionOur only competitor in the Central State region currently provides bundled services at $79.95.  We are currently charging a 10 percent premium over their price, but there are rumors that they are contemplating a 10 percent price increase to bring their price in line with ours. We don’t know their cost structure, so we don’t know whether their price increase is driven by rising costs or a strategic move to gain margin.Historically, when we both charge the same price, our market share is about 65 percent. When we charge a 10 percent premium over their price, our market share declines to about 60 percent. It appears that in those instances charged a ten percent higher price than us, our market share is about 70 percent.Please provide a recommendation regarding whether we should maintain our current price or reduce our price to $79.95. Please factor into your recommendation that we pay programming fees that amount to $49.50 per subscriber. In addition, maintenance, service, and billing costs are about $6.50 per subscriber. At present, there are 110,000 households in the relevant market.