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Why would companies sometimes pay extra to make their product worse?

Versioning is when companies produce more than one "version" of the same product and charge different prices for these different versions. One model will usually be better than the other. For instance: a washing machine manufacturer may introduce a "quieter" version or a printer manufacturer may design a "faster" printer. Versioning works best when the main part of the product is mostly the same, but manufacturers can just install a new chip, for a small cost, which makes the product work differently. Often, there is very little difference between the cost of making the different versions but a big difference in the price they sell for!

This is also known as quality discrimination, as they decide how different qualities of their product will make them the most profit.

Why would companies sometimes pay extra to make their product worse?

  1. So people have to buy a new one again

  2. So they can charge a higher price for a better quality version of the product

  3. Because they don't realise they are making the product worse

Choose your answer, and share in the comments below!

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Anjali


Anjali Garg is an IGGY student mentor and a final year Economics student at the University of Warwick. 

She particularly enjoys industrial economics, which is the application of economics to firms, markets and industries. This is because she hopes to work in many different industries in the future before starting her own business. She's also interested in environmental economics and is writing her dissertation on the effect of temporarily legalising the ivory trade on elephant poaching.

 You can message Anjali at @Anjalig and see more about the Student Mentors here.