Setting the price for a new product is less difficult when other products like it are already being sold. Why is this true?

Question

BlackTom AI · Accepted Answer

When introducing a new product in a market where similar items are already sold, several ideas come into play about pricing.
Option 1: The market will have established a general value for that sort of item. This is correct because comparable products create a benchmark or reference price, helping sellers estimate a fair price based on what buyers already expect for that category.
Option 2: Consumers will have learned to depend on that type of product and will pay whatever it costs. This is not accurate; price sensitivity exists, and buyers weigh perceived value, not blindly pay any amount regardless of price, especially if alternatives or substitutes are available.
Option 3: All retail outlets in the area can get together and agree to sell the product for the same price, regardless of its actual value. This describes collusion, which is illegal in many places and not a standard or reliable practice; pricing is typically driven by market signals, costs, and competition, not a fixed cartel.
Option 4: Consumers will have become used to paying artificially high prices for products in that category. While some categories may experience premium pricing, assuming universally artificial high pricing is not a general truth and ignores competitive dynamics, discounts, and value perceptions that influence price setting.

Setting the price for a new product is less difficult when other products like it are already being sold. Why is this true?

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