Every time a brand hikes its price, the middle class just silently updates its budget and pretends everything is normal. But have you wondered how brands get away with this? No? that is why I am here :), let’s deep dive into basics!
Table of Contents
WHAT IS MARKET POWER
Market power is a company’s ability to influence the market price of its goods or services by controlling supply or demand. Companies with this ability are known as “price makers” because they can set prices above the level that would prevail in a competitive market, while companies in perfectly competitive markets are “price takers” and have no market power. This power allows them to increase their profit margins.
TYPES OF MARKETS
Perfect Competition: Numerous firms sell identical products, and no single firm can influence the market price. This is an idealized market that rarely exists in reality.
Monopolistic Competition: Many firms compete, but they sell differentiated products, giving each firm some control over its prices.
Oligopoly: A few large firms dominate the market, and each must consider the actions of its competitors when making decisions.
Monopoly: A single firm is the sole seller of a product with no close substitutes, giving it significant control over pricing.
How Brands Make You Pay More (Without You Realising)
Price Leadership
These brands are advantaged being in Oligopoly market, if they increase its price – the rest of the companies quietly follows.
It’s like the class topper deciding the notes format — everyone copies. The price increased is nowhere related to increase in cost of production or quality improvement because if it is a brand – it is believed to be of good quality no matter how low or high the prices are. In markets controlled by a few brands, one move sets the trend, and customers have no choice.
Brand Loyalty
Brand loyalty means people stick to their favourite brand even if it becomes expensive. We trust the logo more than logic – “yaa it is a bit expensive but it must be the safest option because after all it is a BRAND”, just like that customers don’t switch easily, and brands know they can raise prices without losing many buyers.
Product Differentiation
Brands make small changes like new flavour, new colour, “advanced formula”, fancy packaging — and call it new and improved.
These tiny differences help them charge more because the product feels unique even if it’s almost the same. It’s a smart way brands use to make old products look premium, making their product eligible to increase prices just because now it looks a little different.
Advertising & Marketing
Ads don’t just sell products — they sell emotions.
Brands make you feel cool, confident, healthier, or happier by buying their product. When people connect emotionally, they stop checking price tags, which gives brands the power to charge more.
ECONOMIES OF SCALE
Economies of scale are the cost advantages that businesses gain as their production volume increases, leading to a lower average cost per unit.
Big brands produce things in huge quantities — millions of units at a time. When you make more, your cost per unit becomes cheaper.
But here’s the twist:
Even though their cost goes down, they don’t reduce the price for us.
Instead, they keep prices high and enjoy bigger profits.
So, while a giant brand may spend ₹10 to make a product they sell for ₹50, a small brand may spend ₹25 to make the same thing. That’s why small brands can’t compete — and big brands get even more control over the market and prices.
Conclusion
Because big brands control the market, we end up paying more without noticing. They raise prices together (price leadership), make us loyal through trust and fear of switching, use fancy packaging and “new improved” tags to justify hikes, and run emotional ads that make higher prices feel normal.
Even though their production cost decreases (economies of scale), they keep prices high.
In the end, the middle-class consumer pays more not because things actually cost more to make — but because brands know we’ll still buy them.
📌Author’s Note:
This blog is not just research — it’s a step in my journey toward working with global institutions like the IMF and World Bank.
Stay tuned and grow with me
