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Differentiation drives profitability when the added price of the product outweighs the added expense to acquire the product or service but is ineffective when its uniqueness is easily replicated by its competitors. [6] Successful brand management also results in perceived uniqueness even when the physical product is the same as competitors.
The major sources of product differentiation are as follows. Differences in quality which are usually accompanied by differences in price; Differences in functional features or design; Ignorance of buyers regarding the essential characteristics and qualities of goods they are purchasing; Sales promotion activities of sellers and, in particular ...
Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one's assumptions regarding the relationship between the product's price and the number of units that can be sold at that price.
Examples are Cournot oligopoly, and Bertrand oligopoly for differentiated products. Bain's (1956) original concern with market concentration was based on an intuitive relationship between high concentration and collusion which led to Bain's finding that firms in concentrated markets should be earning supra-competitive profits.
The main difference between price competition and non-price competition would be the traditional case of which price competition exists in homogenous products where products are very difficult to be differentiated and can only be produced in minimal forms. Such circumstances would result in firms competing with prices, leading to price wars ...
Perfect competition refers to a type of market where there are many buyers and sellers that feature free barriers to entry, dealing with homogeneous products with no differentiation, where the price is fixed by the market. Individual firms are price takers [3] as the price is set by the industry as a whole. Example: Agricultural products which ...
Product differentiation. If products of different firms are differentiated, then consumers may not switch completely to the product with lower price. Dynamic competition. Repeated interaction or repeated price competition can lead to the price above MC in equilibrium. [7] More money for higher price. It follows from repeated interaction: If one ...
The Bertrand model is essentially the Cournot–Nash model, except the strategic variable is price rather than quantity. [49] [clarification needed] Bertrand's model assumes that firms are selling homogeneous products and therefore have the same marginal production costs, and firms will focus on competing in prices simultaneously.