explain the relationship of price and non price competition

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explain the relationship between price and non price competition for a duopoly an oligopoly and a monopolistic competitor? pleae reply as soon as possible please

-- ketan narshi (knarshi@hotmail.com), April 05, 2001


Dear friend,

If you read Sunk Costs and market structure by John Sutton, you may get the answer for your question. However, i will try to share my understanding with you. In industries characterised by homogenous products and competition being based solely on price, firms set prices. In industries that have a high degree of product differentiation and innovation, firms must incur a sunk cost which increases the consumers' willingness to pay for the firm's products. This, generally the research and development (R&D) and advertising expenditures, constitutes the non-price factors on which firms do compete. When advertising or R&D rises or does not change following a rise in price competition, then minimum concentration (which Sutton calls as the lower bound) must also rise. If, however, advertising or R&D decreases as a result of an increase in price competition, then the corresponding fall in sunk costs may or may not offset the fall in gross profit, so minimum concentration may either rise of fall. Thus the relation between the both comes through the market structure of the industry.

-- Abdul Azeez E (eabdul75@hotmail.com), December 10, 2001.

why the international airline industry may be able to make supernormal profits and whether this is likely to continue in the long run.

-- stevenleo (steven_18@hotmail.com), July 03, 2002.

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