Competitive pricing, also known as competition- or market-oriented pricing, uses competition-related information as the basis for its own pricing.
In commodity markets such as the raw material market or the market for basic foodstuffs, competitive pricing is often a widespread form of price formation. Besides, competitive pricing is also common in the retail sector. For example, both Lidl and Aldi have several employees who exclusively calculate and analyze each other’s prices. Even in online trading, pricing is often automatically oriented to the competition.
If a company has the role of price leader in the market, it may well make sense to clearly communicate its own price advantage over the competition to the customer. If, on the other hand, a company is in the role of the price follower in the market, concealing one’s own price structure seems advisable. Yet, pricing based purely on competition without the use of further additional information only makes sense if products or service packages are directly comparable.