Question

Suppose you own a firm and have managed to differentiate your product creating a certain degree of brand loyalty. However, you are still in a competitive industry and do not have the type of price control you want over your consumers. What are some strategies you can employ to allow your firm, despite the product differentiation, to exercise price control over your consumers? and  suppose now there is a strike going on and doctors, chemists, etc. are demanding higher wages and only large firms with larger amounts of financial capital can afford to hire them. Do you think this justifies government intervention and if so what is the best form of intervention?

Answer 1

Even despite the price differentiation, the firm can control over the consumers by reducing the marginal cost of production. If the firm can reduce its cost of production then it will be making more profits as compared to other firms in the industry. When the profit for the firm increases, it becomes efficient and can control prices which the firms having high cost of production cannot manage.

If the employers are demanding higher wages and only large firms with large amounts of financial capital can afford to hire them, then government intervention is needed. The government can intervene by fixing a price ceiling in this case above which the wages in the industry will not rise. This will help the other firms to hire employers and also keep a check on their cost of production.