What is nonprice competition? Why is there an emphasis on nonprice competition in oligopoly markets rather than on lowering prices to gain market share? Explain the concept of market power

What is nonprice competition?

Non-price competition incorporates marketing and advertising approaches that do not involve changing prices. Some of the strategies used in non-price competition include gifts, sales promotions, and coupons. For example, in 2018, the leading supermarkets in Australia, Woolworths and Coles switched to non-price competition after many years of price wars. These companies are now using inspirational stories and sports stars to increase their market size.

Why is there an emphasis on nonprice competition in oligopoly markets rather than on lowering prices to gain market share?

Non-price competition is sustainable compared to price competition. Studies show that if the price is the fundamental selling point, then over time, purchaser loyalty drops and consumers also become more sensitive to price fluctuations. Moreover, price competition results in price wars, and thus firms under oligopoly end up making losses.

Explain the concept of market power.

Market power refers to the capability of a company or a group of firms to sway the prices of commodities in the market. Market power often exists among companies operating under monopoly and oligopoly market structures. For example, in most countries across the globe, the companies involved in the generation of electricity have market power because they often lack competitors. Also, Australia?s supermarket industry, which is oligopoly in nature, is controlled by two major firms, Coles and Woolworths.

Why does a monopolist have market power while a perfectly competitive firm does not?

A monopoly firm has market power because it lacks competitor in the market. Therefore, such company can increase the price without having worries about losing clients to rival firms. On the contrary, a perfect competition market has many sellers, and also the buyers and sellers have access to precise information. Hence, if a firm increases the price, it will lose customers to rival companies.