MARKET STRUCTURE · PRICING · COMPETITION
The microeconomics that actually shows up in a deal
Market structure and pricing theory matter to Sheyconomics’ stakeholders for one reason: they explain why a company can, or cannot, defend its margin once a buyer or a competitor starts pushing on it.
Where this matters, by seat
PE diligence teams
Whether a target’s pricing power is structural or just a byproduct of a market that has not yet gotten competitive.
VC investors
Whether unit economics hold once a company stops subsidizing growth with discounting.
Strategy teams
Where a pricing change will actually stick, and where it will just invite a competitor’s response.
FRAMEWORK
What market structure actually tells you
Concentration & pricing power
How many players actually compete for the same customer, in practice rather than on a market map.
Switching costs
What it actually costs a customer, in time and risk, to leave for a competitor.
Elasticity by segment
Which customer segments will tolerate a price increase, and which will leave immediately.
Entry barriers
Whether a new entrant can realistically replicate the business, or is blocked by capital, regulation or data.
EXAMPLE
Diligence on a target with apparent pricing power
Context. A buyout target showed consistent price increases passed through to customers for three straight years, presented by management as evidence of strong pricing power.
Analysis. Segment-level analysis showed the increases held only for the smallest, least price-sensitive customers. The largest accounts, representing most of the revenue, had renegotiated discounts that offset the headline increases entirely.
Output. The valuation model was adjusted to reflect true realized pricing power by segment rather than the blended average, which changed the view on sustainable margin going forward.
The bottom line
Pricing power that only holds for customers who are not paying attention is not pricing power, it is inertia. The difference matters enormously once a deal is priced on the assumption that it will continue.
The lesson. Test pricing power at the segment level, especially the largest accounts, before underwriting it as a durable margin driver.
