Question

Suppose two seemingly similar goods or services with significantly different prices. Discuss a minimum of three different possible explanations of why those price differences might exist. Be specific about your assumptions. Be clear in why those goods or services have different prices and whether or not those price differences might disappear over time. Give examples of two goods that might fit each of your explanations. What generalizations about how prices relate to one another can you make? Focus on the economic concepts and focus on the first part of the question, then briefly mention the examples.

Answer 1

Price differences are part of the ever evolving market place. Different companies today charge different amounts of price for products that may seem similar to the naked eye but differ in terms of the quality of service and/or the product being provided itself. The following are the reasons for price differentiation to exist among products which otherwise may seem similar in nature.

(1) Superior Quality & Life: -

Some products are built well and have a higher life than others. This makes them more desirable than the other counterparts. When it comes to quality usually customers prefer those products or services which have a higher quality. The increase in demand causes the manufacturer to increase the pricing of the product even when the product or service may be relatively similar in nature.

For example, an Apple iPhone costs much more than any other normal smartphone brand such as Xiaomi. However, Apple still has higher sales despite charging more for its product. This can be attributed to the life and quality of the product itself.

(2) After Sales Support: -

Goods and services which tend to have a higher success rate of after sales support also find themselves selling at a premium price. This is because customers want ease when it comes to problems with the product which they use. Superior after sales service is one of the prime reasons why Apple iPhone would fetch a higher price than a phone sold by Xiaomi.

(3) Brand Value and Loyalty: -

As a brand begins its growth trajectory, it becomes clear that it attracts brand value if customers are happy with the products and services provided. This then allows companies to charge a premium for their products as customers prefer to stick with the same brands which they usually use. The example of Apple and Xiaomi which we listed clearly explains this point as well. Android users tend to shift between brands whereas Apple attracts more sales thanks to the superior brand value it has over most other competitors.

The product used in the above description is a phone which has similar characteristics but is sold by two different brands i.e. Xiaomi and Apple.

Please feel free to ask your doubts in the comments section if any.