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Table 4: Equilibrium

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The supply and demand relationship is used to justify the assumption that dropping prices will result in more sales. However, Alfred Marshall and Economics 101 always prefaced discussion of the graphs “in a perfect world.” Of course, this perfect marketplace bears little resemblance to the day-to-day rough and tumble of running an auto-body shop, or roofing a house, or being a consultant. In fact, it bears no resemblance to highly visible and well-documented industries such as those of oil and diamonds. If you consider that a fistful of oil companies and a cartel (OPEC) control the price of gasoline, you will understand that the marketplace is distorted. Diamonds, until recently, were virtually a planet-wide monopoly of the DeBeers company founded in South Africa at the end of the 1800’s. Not only did DeBeers control the mining and distribution, but also the cutting and retailing of the stones. Attempting to compete against DeBeers was like a modern version of Don Quixote charging at windmills on his horse.

Pricing Strategies for Small Business

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