Question

Why do some firms compete on “nonprice factors” rather than on price? Discuss

Answer 1

This is because the market is competitive with respect to price and the existing Market price is already close to marginal cost of production. this implies that further reduction in price is not possible and therefore to increase sales, all the existing firms would have to to use other nonprice factors. Profits can be increased either by increasing the price or increasing the quantity. if price cannot be increased then quantity has to be increased in order to increase revenue and profit.

These include buy one get one offers, offering extra quantity at the same price, combining two products and selling them together, providing coupons to be redeemed at the store only.