Explain the External factors of pricing decisions

1) Demand: the market demand for a product or service obviously has big impact on pricing. Since demand is affected by factors like number and size of competitor by factor like number and size of competitors the prospective buyers their capacity and willingness to pay their preference etc. are taken into account while fixing the price.

2) Competition: competitive conditions effect the pricing decisions. Competition is a crucial factor in price determination. A firm can fix the price equal to or lower than of the competitors provided the quality of product in no case be lower than that of the competitors.

3) Buyers: the various consumers and business that buy a company's product or service may have an influence in the pricing decision. Their nature and behaviour for the purchase of a particular product brand or service etc. affect pricing when their number is large.

4) Government: price discretion is also affected by the price-control by the government through enactment of legislation when it is thought proper to arrest the inflationary trend in price of certain products. The price cannot be fixed higher as government keeps a close watch on pricing in the private sector.