Traditional economic theory assumes that consumers benefit from price competition. Price competition between firms leads to lower prices for consumers which increases consumer surplus. Lower prices also lead to an increase in real income and an increase in efficiency as firms are forced to reduce costs.
However, some economists argue that, in the long term, intense price competition can be detrimental to consumers since it leads to smaller/less efficient firms leaving the industry. This in turn reduces competition which has a negative impact on choice and quality and can lead to higher prices in the long term.
Those economists who support non-price competition argue that it can lead to price stability which allows consumers to plan more effectively. They also contend that it can lead to improved product quality and improved customer service. They argue that non-price competition can lead to a wider choice of products within a product category (just consider the wide range of mobile phones available at each price range) and that advertising that is associated with non-price competition improves information and therefore competition and efficiency.
lydiajane74 answered the question on July 5, 2018 at 07:36
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