Question

Differentiation business strategies are often associated with premium prices. There are, however, reasons why a firm would NOT want to charge higher prices than the competition. Which of the following is the best example of why a firm would want to keep prices in line with competitors?
a. To leverage complements
b. To increase profit margins per item
c. To invest in product R&D
d. If the industry is in a high-growth stage
e. To drive up market share

Answer 1

Answer: e. To drive up market share

Explanation:

Differentiation strategies involve adding features to a good to make it stand out from the Competition. Since these features are usually beneficial, the value of the good goes up and the company selling them can charge more. This is the main way things are done in Monopolistic markets.

However, sometimes it is best to charge the same price the Competition is charging even though you have a better product. This way the company is able to capture Market Share because the consumers will believe they are getting a better value for their money. For instance, if a company was selling Toyotas at $2,000 and it's competitor was selling the same Toyota but with 2 extra tires for the same $2,000 who would you use? The Competitor most likely.

This is why a firm might want to keep prices in line with competitors.