Question

introduction to business

Why do some businesses intentionally have higher prices for the same product than other businesses?

Answer 1

Ans) Monopolistic competition which is a market structure in which many firms sell products that are similar but not identical.In monopolistic competition each firm has a monopoly over the product it makes,but many other firms make similar products that compete for the same customers this is called price differentiation where each firm produces a product that is least slightly different from those of the other firms or the similar products are differentiated in the mind of customers through the use of advertising. As adverstising manipulate consumer tastes and reduces competition. Big firms have huge funds and spend about 10 to 20 percent of there revenue on advertising as their focus is to highly differentiate the consumer goods by slight change in taste and features so that the products of the competitiors look less lucrative in the eyes of the consumers. Hence it is argued that big businesses intentionally have higher price as through adverstising they manipulate customer's taste and advertising is psychological rather than informational. As we can take an example of soft drink adverstising here it is shown that the people are having fun and they are partying to convey that the soft drink brand of a big firm is an important source of partying and fun through this they do not show the additional information about the price and quality. Through adverstising big firms impedes competition by increasing the perception of product differentiation and fostering brand loyalty as in the above case the brand of soft drink advertised is projected to be a source of party hence it fosters brand loyalty and make people less concern with price differences for the same product offer by other businesses.