Non-price competition is a type of competition in which the firms do not compete on the basis of price. This can be done through various means such as product differentiation, advertising, and branding. Firms may also compete on the basis of customer service or other factors.
In a market with oligopolistic behavior, only a few firms dominate the market, and they compete primarily on non-price measures. In this market, the firms that survive depend on their quality improvement intensities to stay afloat. Although these firms can compete on price, they are often more successful if they can improve their products more efficiently. Non-price competition can also occur when the demand curve is kinked. This kink in the demand curve allows firms to maximize profits at Q, P.
In this market, non-price competition can be beneficial for consumers because it can drive down the cost of a product. The higher the quality, the more likely consumers will purchase it. However, non-price competition can also encourage innovation. Because consumer tastes and needs are changing, firms must continually develop new products to compete. They can easily pivot to new demographics if they need to. The costs of non-price competition can be offset by the increased profits generated from new products.
A diagram of the dynamics of non-price competition is shown in Figure 13. In this market, the individual demand curves of firms are of little or no significance to them. Instead, they only consider the demand curve of the group as a whole. Since prices OP are above the LAC curve, firms earn super-normal profits. As the number of firms grows, the market becomes more fragmented, forcing profits to drop to normal levels.
While price competition implies accepting the demand curve and manipulating prices to achieve its goals, non-price competition seeks to shape the demand curve. Firms compete by lowering prices, but they must also invest in marketing research, advertising, and sales promotion. Non-price competition may require different kinds of innovation. For example, in a non-price market, firms compete by changing the shape and quality of their products. By modifying these factors, they can gain a higher perceived value for their products.
When companies form joint ventures, they obtain majority market power in the industry and can dominate prices. This creates non-price competition that is not useful or relevant. A case that illustrates the problem is Aspen Skiing Co. v. Aspen Highlands Skiing Corp., a case from 1985. This case involved two mountain owners. One was Aspen Skiing Company, while the other was Aspen Highlands. The joint venture offered lift tickets for four mountain areas.
Non-price competition is another term for monopoly-like competition in which competitors compete on non-price attributes. This type of competition is often essential in industries where the competition is too fierce and firms cannot afford to decrease prices. Some non-price strategies include comparing products and services, demonstrating product certification, and marketing a brand name or logo. Many businesses even offer custom products to differentiate their products. They can compete in such a way that customers are willing to pay a little more for the product.
In the case of non-price competition, firms compete on attributes other than price. These attributes may include superior location, unique selling point, after-sales service, or quality. In general, non-price competition is more effective than price competition. For example, companies can differentiate their products through rebates, discounts, and everyday low prices. These factors may be more effective for certain types of companies than others. So, companies may want to consider non-price competition when making business decisions.
The elimination of price competition may also encourage non-price competition. If prices remain fixed, firms may resort to non-price competition as a means of competing. The New York Exchange fixed commission rates but also allowed advisory services. But eliminating price competition does not mean that firms will adopt non-price alternatives. Non-price competition may even increase the cost of a product while improving its quality. For example, a more regulated airline industry may increase flight frequency and increase value to customers.
Similarly, brands that differentiate their products can achieve greater market share by making their products more differentiated. The more products a firm has, the less likely it will be affected by cross-effects from rival firms. Similarly, offering a variety of products can also help firms achieve economies of scope and expand their market base, but it increases overhead costs. For example, the ‘Rainforest Alliance Group’ seal of approval enables McDonald’s to charge more for the same supermarket staples than store-brand counterparts.
In conclusion, non-price competition is a way for businesses to differentiate themselves from their competitors. There are many different ways to compete, and each business should find the strategy that works best for them. Non-price competition can be a powerful tool to increase sales and market share.