Question

A product that represents a clear technological advance over competing products can generally command a high price. Because technological advances tend to be quickly surpassed and companies want to make large profits while they still can, many companies charge the maximum possible price for such a product. But large profits on the new product will give competitors a strong incentive to quickly match the new product’s capabilities. Consequently, the strategy to maximize overall profit from a new product is to charge less than the greatest possible price.

Answer 1

The first is a consideration raised to explain the appeal of a certain strategy; the second is a consideration raised to call into question the wisdom of adopting that strategy

Step-by-step explanation:

The strategy to increase overall profits from the new product is to charge less than the largest possible price.

1. Let’s break down the logic now - and it’s going to be long and complicated. Ignore the boldface for now, because if we don't understand how logic works, we can have a hard time understanding the role of each component:

With advanced technology, a new product can usually be sold at a higher price.

• Most companies charge as much as they can because (a) advanced technology quickly outperforms them and (b) companies want to make as big a profit as they can.
• Knowing that any technical advantage you have will soon outweigh the cost as much as you can to maximize your immediate profit.
• When competitors see a company making big profits on a new product, they want to quickly match the technology of that product.
• By maximizing your own profits, you are giving competitive companies an incentive to quickly "catch up" and create products with similar capabilities.
• Instead, if you don't charge as much as you can and increase your immediate profits, competitors are less likely to match the product.
• Without great high prices, your company has more time to make profits than a technologically advanced product.
• Therefore, according to the author, if a company wants to maximize overall profits from a new product, it must charge less than the highest possible price.