Question

Question 2 Why do some firms compete on "nonprice factors" rather than on price? Discuss.

Answer 1

Firms usually not compete on price, means they usually don’t lower the selling price to attract more customer, because it creates price war among those firms, like if a firm lower the price the other firms may immediately follow that price and it keeps no benefit to that firm.

Therefore, it is better to have non-price competition. Firms compete on brand value, quality of service, advertisement, discount on selling, etc. Although these create additional costs, these are effective in increasing revenue and profit. Suppose a firm gives regular advertisement for its product in television; it increases total cost of product but still the firm follows it because it increases sales revenue and more importantly other firms can’t do anything in this regard.