Why is much more profitable for a company to bring to market a new product than secon?
While your statement is generally true, it is not always true.
The producer of a new product MAY enjoy some monopoly power for a time. Makers of an existing product are, by definition, in competition with someone else.
Now then your statement is not always true. What if the firm discovers a low-cost way of producing an existing product. The potential for profit could be quite large.
To understand why bringing a new product to market can be more profitable than making improvements to an existing product, we need to consider a few factors:
1. Monopoly Power: When a company introduces a new product, they often have a period of time where they are the sole provider of that product. This gives them a certain level of monopoly power, allowing them to set higher prices and generate higher profits in the early stages of product adoption.
2. Differentiation: A new product has the advantage of offering something unique or different from what is currently available in the market. This differentiation can create a competitive edge and allow the company to charge a premium price, leading to higher profit margins.
3. Early Adopters: When a new product is introduced, there is usually a segment of consumers who are eager to try it out. These early adopters are generally less price-sensitive and more willing to pay a higher price, which again contributes to higher profits.
4. Innovation and R&D Investment: Developing a new product often involves significant research and development (R&D) investments. These investments can lead to breakthroughs, patents, and intellectual property rights, providing the company with a competitive advantage and potential future revenue streams.
However, it is important to note that these reasons are not absolute and that the profitability of a product depends on various factors specific to each industry, market, and company. In some cases, improving an existing product or finding cost-efficient ways to produce it may also lead to significant profit gains.