Firms in the textile industry can compete using pricing or non-pricing strategies. Pricing strategies involves the use and manipulation of prices to increase market share and reduce potential and existing competition in the textile industry. Non pricing strategies on the other hand refer to all the alternatives, excluding price, that a firm uses to achieve the same objectives.
One of the most common pricing strategies used in the textile industry is the use of limit pricing. This involves a firm setting a low enough price to deter new entrants from coming into the textile industry. For example, a firm would set the price of their products below the estimated average cost of the new entrant thus making the new entrant encounter a loss if they enter hence discouraging them from entering the industry. This means that the existing firms will maintain their market shares and competition is ensured in the textile industry. Limit pricing also acts as a barrier to entry hence promoting competition in the industry. For example, in the U.K., sales at clothes shops are very common. The prices of clothes in some shops are set at a very cheap price so as to increase their customers and to prevent entry of new firms into the industry
However, if limit pricing is considered anti-competitive, the firm risks investigations and possible penalties from the competition authorities. This is because the authorities seek to promote competition in such industries so as to ensure consumers are protected and are not exploited through high prices in the future. Penalties could exceed up to 10% of the firms annual turnover or the managers risk imprisonment. This discourages firms from engaging in anti-competitive behavior and hence will be discouraged from using limit pricing as a strategy to compete with other firms.
Firms in the textile industry usually adopt non-pricing strategies. For example, advertising. Firms in this industry advertise very heavily in order to get the...
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