Non-price competition refers to all forms of competition other than through the price mechanism. Firms using non price competition usually try to differentiate their goods on the basis of quality, design or reliability. Examples of non-price competition include branding, advertising, customer service and the issue of extended warranties. There are a number of reasons why firms might use non-price competition:
• in some industries firms find that their cost structures are very similar and therefore there is little scope to compete on price
• firms may avoid price competition because they fear it may lead to price wars and therefore they tend to keep price unchanged and compete in other ways
• firms may simply believe that consumers are more sensitive to changes in style or quality rather than changes in price. This is typical in the clothing industry, therefore clothes retailers will compete in these areas rather than price
• in oligopolistic markets firms may use non-price competition since they are likely to face a kinked demand curve and therefore any change in price will lead to a fall in total revenue
• possibility of collusion
lydiajane74 answered the question on July 5, 2018 at 06:34
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