JOSÉ VALVERDE CORTÉS 1º ICCP

Ad Valorem prices. Definition and effects

Ad valorem fares are the prices set for a product or merchandise depending on its
market price.
Second, ad valorem tax may also be referred to as indirect taxes set by the
government for the following purposes:
• Increase revenue linked to economic growth.
• Discourage the consumption of harmful products, for example the purchase of
alcohol.
• Promote the consumption of national products.
These indirect taxes have an impact on the buyers and can have a negative effect on
consumption, leading to a purchase of cheaper and generally lower quality products.
In Spain, this type of tax is known as IVA.
Returning to the first definition, the choice of what we have focused on analyzing in
class, we must take units of volume or weight, among others, to quantify the price of
the ad valorem rate.
In an economic scenario characterized by monopoly, the company can obtain great
advantage by applying this type of tariff. The company in question has great benefits
when trading with high value products and a reduced losses with other services.
Finally the balance would be clearly positive.
The emergence of a new company, or a perfectly competitive market could
unbalance this pricing strategy, serving only market niche of greater economic
relevance and discarding market segments where it can have a lack of interest.