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Not necessarily, cost reductions can increase, decrease or have no effect the total expenditure on goods. The total effect is quite ambiguous depending on the i
by spacebanana7 3y ago
Not necessarily, cost reductions can increase, decrease or have no effect the total expenditure on goods. The total effect is quite ambiguous depending on the income and substitution effects.
- aesh2Xa1 3y agoI agree. I've always heard "charge what the market will bear." Why would a reduction in advertising costs equate to lower consumer pricing — if there's a better margin to be had instead?
- hirako2000 3y agoBecause for most products brand fidelity isn't keeping competition away. Higher than necessary margin does not last long in a competitive market.
- aesh2Xa1 3y agoGood point. That can be true if two competitors are competing on price as a primary factor. Price might not be the biggest factor, however, and improving the margin would be attainable in that gap.