There are four categories of answers to this problem:

 

  1. Luxury Goods: Raising the price can improve the product’s ability as a “show-off” item, i.e., by raising the price the utility of the goods is improved to someone engaging in conspicuous consumption. Further, people will frequently assume that the high price equates to a better product, & this can sometimes lead to increased sales.
  2. Non-luxury goods: Same as second factor sighted above, i.e., the higher price conveys information assumed to be correct by the consumer, that the higher price connotes higher value. This can especially apply to industrial goods, where high reliability is an important factor.
  3. Raise the price & use the extra revenue in legal ways to make the product work better or to make the sales system work better.
  4. Raise the price & use the extra revenue in illegal or unethical ways to drive sales by the functional equivalent or bribing purchase staff or in other ways detrimental to the end consumer, 1.e., mutual fund commission practices.