Consumer behavior is the study of actions and decision processes of the people who purchase goods and services for personal consumption. Whereas, pricing strategies is an approach used to price the product based on ‘cost to produce and design the product, ‘cost to distribute’ and ‘cost to promote it’. Competition pricing is a pricing strategy includes, setting a price of the product in comparison with competitors. A firm has three options to perform competition pricing are to lower the price, price the same or price higher than the competitor. This is one of the major strategy influence the consumer behavior in choosing the product.
According in Law of supply and demand, the price is inversely proportional to demand. That is, when the price of the product is low, the demand of the product is high. On the other hand, the price of product is directly proportional to supply of the product. That is, as the price rises, production (supply) is also increases. These are all mutually related to each other. When the price is too low, the consumer demand is much higher than the available supply thus the cause of shortage. When the price is much high, the consumer demands below supply causes the surplus. But, at one point consumer demand and supply of goods are equal called equilibrium point. This is the point competitors consider in pricing strategies of the product with respect to consumer demand.
For example, Office depot, Inc. is an office supply company adopted a specific type of pricing the product compared to the same category companies. This company fixes price of the product until the new product is released. As soon as new one is released, company decrease the price of old product and fix the reasonable price for the new product. For instance, the cost of iPhone 5S is $699 until the iPhone 6 plus (cost: $749). Whenever the new one is released, the company drops the iPhone 5S cost to $549 only until the stock left in inventory. Why company does this is, they stops the supply of old product (here: iPhone 5S) and starts to get supply of new one (iPhone 6 plus) from manufacturer (As far as I understood). They uses pricing strategies like everybody else using now a days as $0.99 instead of $1.00. Because perception of ninety nine cents is more captivating than dollar bill. It’s funny but it’s psychologically proven truth.