Final answer:
The correct term is 'pricing strategy,' a concept that relates to short-term responses in a competitive market. The practical aspects of competitive pricing, like determining predatory pricing, involve complex real-world considerations such as average variable costs and market demand.
Step-by-step explanation:
Generally, a pricing strategy represents either a short-term response to a competitive threat or a broadly accepted method of calculating a final price for the customer that is short term in nature.
The theory of competitive pricing is a model used for measuring the performance of markets. While this model assumes ideal conditions, in reality, influencing factors like droughts impacting food prices or predatory pricing can disrupt these ideal scenarios. Predatory pricing, for example, involves an existing firm lowering prices to eliminate competition from new entrants, which then raises prices once the threat is neutralized. However, determining whether pricing is predatory depends on a firm's pricing compared to its average variable cost and can be complex in real-world situations.
Monopolistic competitors can gauge whether their pricing will generate profits or losses by comparing their prices with average costs and considering market demand. Well-known brands and economies of scale can influence pricing strategies, adding layers to competitive pricing calculations.