When the products of several competing suppliers are perceived by

When the products of several competing suppliers are perceived by consumers to be essentially the same, classical economics predicts that price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels.

This statement presents a prediction made by classical economics.

What is the prediction?

The prediction is of the form: When X happens, Y will happen.

X: the products of several competing suppliers are perceived by consumers to be essentially the same

Y: price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels

Let me address a common mistake made w.r.t. this statement.

If we are given that “when X happens, Y will happen” can we infer the following?

• X is currently happening
• X is always the case

The answer is that we cannot infer any of the above two statements.

For example, if I say that “when you jump, you will fall,” my statement doesn’t mean either that you’re currently jumping or that you keep jumping all the time. It is entirely possible that you rarely jump.

Thus, we cannot take “the products of several competing suppliers are perceived by consumers to be essentially the same” as a fact that is always the case.

Therefore, if classical economics is true, and given suppliers’ desire to make as much profit as possible, it should be expected that ____________

The author makes a conditional conclusion.

There are a couple of pieces of information given in the “if” part:

1. The classical economics is true. That means the prediction given in the first statement is true. That means we can be sure that when X happens, Y will happen (X and Y have been defined earlier)
2. Suppliers have a desire to make as much profit as possible

Given these two pieces of information and the first statement, we can expect something. That something is what we need to find from the options.

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Essentially, we’re given two facts:

1. When the products of several competing suppliers are perceived by consumers to be essentially the same, price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels.
2. Suppliers have a desire to make as much profit as possible

Given that the situation presented in the first fact leads to minimal profits for suppliers and that suppliers want to maximize their profits, we can expect that suppliers will want to avoid that situation, i.e., suppliers will want to avoid the situation in which their products are perceived to be essentially the same by the consumers.

(Can we expect that suppliers will be able to avoid such a situation? No, we cannot expect that. While we can expect them to want to avoid such a situation, we don’t know whether they have the capability to avoid such a situation.)





(A) in a crowded market widely differing prices will be charged for products that are essentially the same as each other

Incorrect. (“Crowded market” literally means that the market is crowded, i.e., a market with very many suppliers. My analyses of all the options use this understanding of the term “crowded market”)

This option seems to contradict the information given in the passage. The passage says that when the products are perceived to be the same, price competition will reduce prices to the same minimal levels. On the contrary, this option says that widely differing prices will be charged!

(B) as a market becomes less crowded as suppliers leave, the profits of the remaining suppliers will tend to decrease

Incorrect. This option talks about what happens when a market becomes less crowded.

Are we given any information about what happens in such a case?

No.

Perhaps, the profits of the remaining suppliers tend to remain the same or increase.

(C) each supplier in a crowded market will try to convince consumers that its product differs significantly from its competitors’ products.

Correct. This option is in line with what we expected when we combined the two facts in the passage.

We expected that suppliers would want to avoid such a situation where their profits become minimal.

Thus, we can expect that each supplier will try to convince consumers that its products are significantly different from other products. (We can expect that they will try; we don’t expect that they will be successful.)

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I believe some people reject this option by saying that it contradicts the information given in the passage. As we discussed while understanding the passage, the statement “When X happens, Y will happen doesn’t mean that X is happening or always happens.

(D) when consumers are unable to distinguish the products in a crowded market, consumers will judge that the higher-priced products are of higher quality

Incorrect. The “when” part of this statement is the same as the “when” part of the prediction given in the passage. The passage says that in this case, price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels.

However, this option says that in this case, consumers will judge higher-priced products to be of higher quality.

Essentially, this option indicates that in the given case, consumers will figure out a way to differentiate the products.

This is nowhere indicated in the passage.

(E) suppliers in crowded markets will have more incentive to reduce prices and thus increase sales than to introduce innovations that would distinguish their product from their competitors’ products

Incorrect. I believe some people who mark this option think that introducing innovations is a waste of money because it is given in the passage that consumers perceive the products to be the same.

The reasoning is flawed because it is based on incorrect comprehension. As we discussed, the statement “when X happens, Y will happen” doesn’t mean that X is happening or always happens.

Thus, there is no reason to say consumers perceive the products to be the same.

On the contrary, since when the consumers perceive the products to be the same, suppliers’ profits go down, it is reasonable to say that suppliers will have an incentive to introduce innovations to distinguish their products.

Option E presents a comparison between two alternatives with suppliers in crowded markets:

1. Reduce prices and thus increase sales
2. Introduce innovations that would distinguish their product from their competitors’ products

Option E says that suppliers will have more incentive to go with 1 than to go with 2.

The passage provides support for the second strategy for suppliers. However, the passage doesn’t talk about (support or go against) the first strategy. The passage also doesn’t say that reducing prices will increase sales (the “thus” part cannot be justified on the basis of the passage).

For these reasons, we cannot expect option E.

Thus, option E is incorrect.
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Good one;
Reading the passage ; discussion about the classic theory and product cost. When you carefully read the passage you will find the that the customers are perceiving the products to be the same; which gives you a hint of what the correct option might based on. Then while scrolling through the options C, D, E seems to be the answers. But wait, E discuss about innovation; D discusses about the product quality both of which are out of scope. Remaining is C, But wait, as A also seems correct which states about the different price tags at lower levels ? But if you remember the first point that the consumer perceived the products same. So what going to make them convinced to buy something which is perceived as same. Yes if they are convinced that the product they are purchasing is different. Hence and-C

Its C..... when classic economic fails...... home grown marketing rules!

“…….When the products of several competing suppliers are perceived by consumers to be essentially the same”, when customers are already perceived that all the products are same, then in C answer choice how come customers will be convinced that that product differs from other product slightly.

I am not very much convinced from C answer choice, could someone please explain this and also why A is wrong?

FACT- When the products of several competing suppliers are perceived by consumers to be essentially the same,classical economics predicts that price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels.
CONCLUSION- if classical economics is true, and given suppliers’ desire to make as much profit as possible, it should be expected that----THEY WOULD NOT LIKE TO BE BRANDED AND WOULD THEREFORE TRY TO POSE DIFFERENTLY.........

(C) each supplier in a crowded market will try to convince consumers that its product differs significantly from its competitors’ products. CORRECT....

Hi 1904praveen

I would like to compare choices C and A below and I hope it would answer your questions.

(A) in a crowded market widely differing prices will be charged for products that are essentially the same as
each otherEven though widely differing prices are initially charged for products that are essentially same as each other, according to classical economics prediction, due to competition, prices will be later reduced and profits will be lowered to minimal levels.
(C) each supplier in a crowded market will try to convince consumers that its product differs significantly from
its competitors’ products.Now if the suppliers are able to convince the consumers enough that their product is significantly different in the market, then the competition may not force them to lower their prices but rather allow them to maximize the profits.

Do you agree with me?

Due to high competition, suppliers should convince consumers to buy their products by saying that their products have a special feature not present in the products sold by other suppliers.

Answer: C

THE ANSWER IS C

Lets deconstruct the argument

CLASSICAL ECONOMICS
Similar product= Same price range=Similar (and less) profit for every manufacturer.

By following the rule of classical economics
Different product= Not the same price range= Not the same profit anymore

What should a manufacturer do to earn more profit. He should break the customers notion of his product being just another similar product that are already in the market.
HOW TO BREAK THIS NOTION:- By convincing the customer that his product is not similar to other products and thats why it is sold at a different price (higher price to be precise)

C) Each supplier in a crowded market will try to convince consumers that its product differs significantly from its competitors’ products.


C is the correct answer


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Dear Expert - GMATNINJA, BUENEL, CHETAN2U
Kindly explain the Argument as according to me:

A - crowded market means more perceptions means different prices so this one looks right, KEEP A
B - profits will increase and not decrease, so B OUT
C - supplier will try this to increase his profits, so KEEP C
D - prices will be same when perception is same, so D OUT
E - crowded market--> more perceptions --> reducing price can inc sales, KEEP E

How do I proceed and where am I going wrong?
Kindly help..

So first make sure you're getting the key points from the paragraph.
--When customers think products are essentially the same, prices (and thus profit) drop as much as possible.
--Businesses want to maximize profits.

Well, if they want to maximize profits, they don't want customers to think their products are essentially the same.

We want to say what 'should be expected.'

A seems to contradict what is written. I suppose it's possible that basically identical products might not be perceived as identical, but I don't know if there's any reason to say that should be *expected*. I think (A) only follows if (C) happens first, basically. Businesses should try to convince people their products are different, so they can then charge different prices for those products. But I can't jump right to A.

C says basically what I would expect.

E says company's do not have incentive to innovate and distinguish their product from other products. This seems to be the opposite of what we know in the passage.

You make this move twice: "crowded market--> more perceptions"

I don't exactly understand what you're going for. That in a crowded market, it's more likely that customers WON'T perceive identical products as identical? I don't think that logically follows. That's your own assumption, I can't support that in the text at all.
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KarishmaB GMATNinja

Why D is incorrect? Is it bcz we don't know how consumer will judge higher prices products?

(D) when consumers are unable to distinguish the products in a crowded market, consumers will judge that the higher-priced products are of higher quality

If classical economics is true that "price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels" and given suppliers’ desire to make as much profit as possible, it should be expected that ____________
For correct answer, we need to consider "price competition will reduce prices to the same minimal levels and all suppliers’ profits to the same minimal levels" as a fact and then come up with a possible scenario.
I am confused with what question is asking.

We are given that
When the products of several competing suppliers are perceived by consumers to be essentially the same, classical economics predicts that price competition will reduce prices to the same minimal levels

and the question stem tells us that we have assume classical economics to be true...

So what we can say is that when consumers are unable to distinguish the products in a crowded market, the prices will reduce to the same minimal level. Then there is no question of higher or lower prices for those products.

(D) when consumers are unable to distinguish the products in a crowded market, consumers will judge that the higher-priced products are of higher quality

Then, (D) cannot be correct.
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Bunuel Should it always be within the scope, I mean if there is no mention about the product quality or innovation in the passage/argument, can an answer including any of these out of scope words not be the correct answer?

Hello Expert,
avigutman

As we say , CR is logical and related to real world. The more one thinks keeping real life in mind, the more accurate one will get in CR.

Keeping the above in point,

I rejected Choice E because in real life scenario , in a crowded market suppliers will have more incentive to introduce innovations that would distinguish their products

Is my approach correct ?

Regards

Yes, PriyamRathor. But, if you already knew that suppliers in a crowded market would be incentivized to distinguish their products, then in my opinion you'd have been better off picking C and moving on (why bother reading D and E if C fits the bill so nicely).
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Thank you for the reply avigutman.



So , I follow POE method to solve Verbal Questions. Hence, I just read all the Options to make sure that my selected answer fits the bill perfectly.

Is it a right approach to skip the rest of the options if I find an answer that is apt according to my pre-thinking?

Thanks.

PS: It's always a pleasure to read your replies as you not only give your opinion about the question asked but also add some advice or advice in form of questions that I don't expect (say for example in this reply). Thank you for your contribution towards the community.

Yes, PriyamRathor. See why in this video:
https://youtu.be/ja_aseZp9E0

Posted from my mobile device
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The passage discusses the effect of price competition in a market where consumers perceive the products of competing suppliers to be essentially the same. Classical economics predicts that in such a scenario, price competition will drive prices down to minimal levels, resulting in minimal profits for all suppliers. The question asks us to select the option that best completes the passage based on this information.

Option (C) states that each supplier in a crowded market will try to convince consumers that its product differs significantly from its competitors' products. This option provides the most logical completion for the passage. Here's why:

When products are perceived as essentially the same, suppliers face a challenge in differentiating their offerings from those of their competitors. By attempting to convince consumers that their product has unique and significant differences, suppliers are trying to create a perceived value that sets their product apart. This strategy aims to overcome the perception of sameness among the products and attract consumers' attention.

Option (C) aligns with the expectation that classical economics holds for suppliers in crowded markets, which is to maximize profits. By emphasizing significant differences in their products, suppliers hope to capture a larger market share and potentially command higher prices. This strategy can help suppliers maintain or increase their profits in the face of intense price competition.

Therefore, option (C) completes the passage in a comprehensive manner by acknowledging the efforts of suppliers to convince consumers of the significant differences in their products in order to maintain or improve their profitability in a crowded market.