As time progresses, some of the matters that human beings interact with regularly such as healthcare and education price tend to grow. On the other hand, there are other products, such as purchaser electronics, which typically become cheaper in actual terms. A clear example is a computer monitor, like the one sold through Monoprice Company (Goldstein and Smith). Such a fall in price can primarily be attributed to technological advancements, which in turn led to low manufacturing cost. While such company would make higher profits with the aid of maintaining the original price, it has never been the case. This paper will, therefore, describe motives why firms opt to lower rate as production cost drops other than keeping a fixed value.
Firms are mostly forced to lower the cost of their products to thrive in the highly competitive market. Considering the case of Monoprice and their monitor business, one notes that before a firm brings a new product in the market, they assess the availability of similar products among other competitors (Goldstein and Smith). For a company to secure a share in the market, it has to come up with enticing techniques that will give them a competitive advantage. The most common approach is price reduction as it happened with Monoprice, whereby they sold their new monitor at half the price that Apple, a close competitor, was offering (Goldstein). If they decided to sell the monitor at the same rate, it would not be easy to convince customers to choose the new product in preference to the existing one without an apparent reason. The company will then not manage to thrive in the competitive environment.
The other critical reason why firms prefer price reduction is because they can compensate the incurred loss through other means. For instance, when Monoprice finally designed their new monitor, they decided to sell them online (Goldstein). They managed to sell them at $425, half the price that Apple was selling the same products. The trick here is that through online trade, a firm relieves itself the burden of installing stalls and other infrastructure, and the amount saved compensated the low profits realized due to price reduction (Goldstein). If Monoprice decides to maintain the same price and still engage in online trading, customers will not find a reason to go for a product they have not interacted with in preference to the one they are used to.
Finally, as more companies continue to sell the same product, competition becomes stiffer, and price reduction remains the only option to eliminate some firms from the market. It reaches a point when profit-making becomes a non-issue for stable companies, and they drastically lower the price of products, so that less stable companies can find it hard to survive in such a market (Goldstein and Smith). Once the market becomes favorable to such firms, price returns to its original values. For instance, when Monoprice introduced their monitor, it took less than two years for other companies such as Dell, Samsung, Apland, and Ben-Q to start selling the product (Goldstein). Competition became too tough to the extent that some of these companies reduced the price by about 75% in efforts to eliminate others (Goldstein). Therefore, it is clear that in a market where competition for a particular product is very high, the price reduction is often applied. However, this trend mainly favors those products made by machines such as monitors, because the cost of production lowers as technology becomes more advanced. Although maintaining the same price would attract more profit, companies opt to reduce it instead to woe more customers into their side.
Goldstein, Jacob. “Making Electronics Cheaper Requires Detective Work.” NPR, 4 December 2014, http://www.npr.org/2014/12/04/368408186/at-monoprice-employees-probe-how-to-make-things-cost-less. Accessed 08 October 2017.
Goldstein, Jacob and Smith, Robert. “Episode 586: How Stuff Gets Cheaper.” NPR, 5 July 2017, http://www.npr.org/sections/money/2017/07/05/535677904/episode-586-how-stuff-gets-cheaper. Accessed 08 October 2017.