DIFFERENCE BETWEEN PRICE COMPETITION AND NON-PRICE COMPETITION

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Competition in any market, whether perfect competition, monopolistic competition, Oligopoly, or monopoly, can take two forms: Price competition and Non-price competition.

Price Competition

Price competition can be defined as a situation where two or more firms compete against each other using price.

Firms in a market engage in price rivalry by being constantly receptive to and reactive to changes in competitor prices.

For example, when a firm cut its price, the other firms may decide to follow suit to avoid losing market share.

Firms always strive to produce at the lowest cost per unit in a market where there is price competition so that they can always match competitor price reductions.

Price competition entails creating different strategies to beat competitors' prices. Price competitive firms may set prices at per or below that of competitors to maintain or expand market share.

Non-price Competition

Non-price competition is a type of competition where two or more businesses compete on the basis of product features and product quality rather than by lowering prices.

It is a market strategy or competitive strategy when a firm strives to set itself apart from rivals by developing a unique product offering.

The most common form of non-price competition is product differentiation, where a firm tries to distinguish its product from those of competitors by offering better product designs and features.

Difference between Price Competition and Non-price competition

1. Non-price competition exists when a firm tries to match and surpass competitors' product offerings and features, whereas price competition exists when a firm is willing to match and beat competitors' prices.

2. As it relates to the demand curve, price competition result results in a change in the quantity demanded because changes in quantity demanded is a function of price changes.

On the other hand, non-price competition results in a change in demand because the non-price factor causes a change in demand.

3. In price competition, being efficient enough to sell at a lower price than rivals is the key to gaining market share.

The foundation for gaining market share in non-price competition, however, is to consistently release new products and enhance those that are already on the market.

4. Price wars or price rigidity always arises from price competition, although this is highly unlikely to happen in the case of non-price competition.

5. While companies engaged in non-price competition must be willing and ready to continuously enhance their products, those engaged in price competition must be willing and ready to adjust pricing often.

Features Price CompetitionNon-price Competition
MeaningA form of Competition where firms engage in competition using price strategiesA form of Competition where firms engage in competition using non-price strategies
Involves the use ofPriceAdvertising, product development and innovation
Result inChange in quantity demandedChange in demand
Cause price wars?YesNo
Practice in a perfectly competitive market?No, because firms are price takersNo, because product are identical

In conclusion, the major difference between Price competition and non-price competition is this: Price competition results in a change in quantity demanded whereas Non-price competition results in a change in demand.

Additionally, where products sold in a market are highly identical, then a firm may engage in price competition, provided it has market power.

Businesses may participate in non-price rivalry when the products sold in a market are not identical.

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