BE/U5 Topic 4 Selling Costs
Selling costs play the key role in monopolistic competition and oligopoly. Under these market forms, the firms have to compete to promote their sale by spending on advertisements and publicity.
Moreover, producer has not to decide about price and output and he also keeps in view how to maximize the profit.
“Selling costs are costs incurred in order to alter the position or shape of the demand curve for the product.” E.H. Chamberlin
“Selling costs may be defined as costs necessary to persuade a buyer to buy one product rather than another or to pay from one seller rather than another.” Meyers
Assumptions of Selling Costs
Basically, the concept of selling cost is based on the following two assumptions:
- Buyers do not have any perfect knowledge about the different types of product.
- Buyers demand and tastes can be changed.
Difference between Selling Costs and Production Costs
There is a fundamental difference between selling costs and production costs. Production cost includes all the expenses incurred in making particular product and transporting it to the consumers. They include, outlays incurred on services engaged in the manufacturing of the product like land, labour and capital etc. On the other hand, selling costs include all the costs incurred to change the consumer’s preference from one product to another. These are generally intended to raise the demand of one product at any given price.
According to E.H. Chamberlin, “Production costs create utilities in order that demands may be satisfied while selling costs create and shift the demand curves themselves.” In short, we cannot make a clear cut distinction between the selling cost and production cost. In fact, both the costs are inter-related throughout the price system, so that at no point it can be said that one has ended and the other is to begin.