When is at cost pricing most likely to occur according to market conditions?

At cost pricing typically arises during economic downturns due to several influencing factors. In a challenging economic environment, companies may struggle to maintain their market share as consumer demand diminishes and competition intensifies. To keep projects moving and to maintain a presence in the market, businesses might resort to pricing their goods or services at cost, which means they charge their customers only enough to cover their production expenses without adding a profit margin.

This pricing strategy can help businesses avoid larger losses and maintain cash flow, helping them navigate through tough economic conditions. It also allows them to attract customers who are more price-sensitive during downturns, further supporting their operational sustainability.

In contrast, in situations of high demand, low competition, or when new projects are starting, businesses are more likely to price their offerings above costs to maximize profits. High demand typically encourages higher pricing strategies, while a lack of competition allows firms to set prices at a premium without fear of losing customers. New projects often involve initial investments that need to be recuperated through markup pricing rather than cost-based pricing.