Price and non-price rivalry
| English | 中文 | Pinyin · 拼音 |
|---|---|---|
| limit pricing | 限制性定价 | xiàn zhì xìng dìng jià |
| predatory pricing | 掠夺性定价 | lüè duó xìng dìng jià |
| non-price competition/nɒn praɪs ˌkɒmpəˈtɪʃn/ | 非价格竞争 | fēi jià gé jìng zhēng |
| after-sales service | 售后服务 | shòu hòu fú wù |
A decision you can investigate
- A price cut may be ordinary competition, an attempt to discourage entry, or part of a strategy to exclude an existing rival. Better repairs and service can compete without a price cut.
- A low price alone does not identify motive or long-run effect.
Build the explanation
- Price wars involve rival price reductions that can lower margins and benefit current buyers. Limit pricing 限制性定价 aims to discourage potential entry by making expected entry returns unattractive; the price need not be below the incumbent’s cost. Predatory pricing 掠夺性定价 involves a strategy of sacrificing returns to exclude rivals with an intended later recovery of losses; evidence, cost benchmarks and the feasibility of future recovery matter. Do not label every discount predatory or make a universal legal claim.
- Non-price competition 非价格竞争 includes advertising/branding, quality, endorsement, product placement and after-sales service 售后服务. Advertising can inform or persuade; quality can improve durability or performance; endorsements and placements associate products with people/media; service can reduce customers’ repair risk. These channels may improve value or raise costs and switching barriers. Evaluate each mechanism and who pays.
Work through the evidence
- A fictional incumbent sells100 units at price12 with average economic cost9: profit300. Price10 at unchanged volume and cost gives profit100. If volume rises to130 but average cost stays9, profit becomes130. These calculations illustrate margin/volume effects, not a demand forecast.
- In a separate entrant case, incumbent cost9 and entrant attainable cost11 make price10 profitable for the incumbent but unattractive for that entrant: limit pricing need not be below incumbent cost.
- A service upgrade costs200 and prevents an expected300 customer repair loss under the stated assumptions. Its expected combined resource gain is100 before other costs, but how price and risk are shared determines each party’s benefit. A paid endorsement adding no verified product quality should not be counted automatically as a technical improvement.
What is profit at price10, volume130 and average cost9?
Margin1 times130 units equals130.
Test the limits
- Consumers may gain lower prices, better information, quality and service, but face misleading advertising, weaker future rivalry or switching costs. Firms may gain sales or loyalty while spending more and risking retaliation. Workers may gain new roles or face margin pressure; suppliers may gain orders or be squeezed by stronger bargaining.
- A price war can be temporary or sustainable with lower costs; below-cost sales can have several explanations. Assess time horizon, costs, entry, consumer alternatives and the evidence of exclusion rather than asserting motives from one observed price. Endorsement/product placement need attribution and honest claims. Non-price spending is neither inherently wasteful nor guaranteed innovation; compare resource costs with information, quality and welfare gains.
What makes the stated limit price profitable to the incumbent?
Different attainable costs matter; the entrant may not cover11.
All price reductions are predatory pricing.
Ordinary rivalry, cost changes and entry deterrence need separate evidence and mechanisms.
Apply and explain your answer
- Why can the price10 entry-deterrence example differ from selling below incumbent cost?
- Incumbent cost is9, so price10 covers it. The comparison that discourages entry is against the entrant’s different cost11.
What is the service case’s expected resource gain before exclusions?
Prevented loss300 less service cost200 equals100.
Use the terms precisely
- limit pricing: Pricing intended to make potential entry unattractive under the stated entry-cost and expectation conditions.
- non-price competition: Rivalry through product, information, branding, access or service rather than mainly price changes.
- predatory pricing: A strategy sacrificing current returns to exclude rivals with intended later recovery of losses.
- after-sales service: Support for customers after purchase, such as repair or maintenance.
Match the terms to their meanings.
Use each term for its stated economic relationship.
A fictional incumbent sells100 units at price12 with average economic cost9: profit300. Price10 at unchanged volume and cost gives profit100. If volume rises to130 but average cost stays9, profit becomes130. These calculations illustrate margin/volume effects, not a demand forecast. In a separate entrant case, incumbent cost9 and entrant attainable cost11 make price10 profitable for the incumbent but unattractive for that entrant: limit pricing need not be below incumbent cost. A service upgrade costs200 and prevents an expected300 customer repair loss under the stated assumptions. Its expected combined resource gain is100 before other costs, but how price and risk are shared determines each party’s benefit. A paid endorsement adding no verified product quality should not be counted automatically as a technical improvement.
Consumers may gain lower prices, better information, quality and service, but face misleading advertising, weaker future rivalry or switching costs. Firms may gain sales or loyalty while spending more and risking retaliation. Workers may gain new roles or face margin pressure; suppliers may gain orders or be squeezed by stronger bargaining. A price war can be temporary or sustainable with lower costs; below-cost sales can have several explanations. Assess time horizon, costs, entry, consumer alternatives and the evidence of exclusion rather than asserting motives from one observed price. Endorsement/product placement need attribution and honest claims. Non-price spending is neither inherently wasteful nor guaranteed innovation; compare resource costs with information, quality and welfare gains.
Price wars involve rival price reductions that can lower margins and benefit current buyers. Limit pricing aims to discourage potential entry by making expected entry returns unattractive; the price need not be below the incumbent’s cost. Predatory pricing involves a strategy of sacrificing returns to exclude rivals with an intended later recovery of losses; evidence, cost benchmarks and the feasibility of future recovery matter. Do not label every discount predatory or make a universal legal claim.