Abstract

The total amount of money spent on advertisement and publicity for pushing the sale of the product is called selling cost. Selling costs are based on two assumptions: (i) Buyers' demand and taste can be changed; and (ii) Buyers do not have full knowledge about the different types of the product. These costs help the firm increase the popularity of its product and attract new customers to it. There are significant differences between selling cost and production cost (discussed below). According to Chamberlin, selling costs curves are also U-shaped.

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Selling Costs

To sell their products, firms under monopolistic competition have to spend a lot on advertisement and publicity. In Economics, the total amount of money spent on advertisement and publicity for pushing the sale of the product is called selling cost. The need for incurring selling costs is acutely felt under monopolistic competition only. In the case of perfect competition, products of all producers are homogeneous. So, they do not feel the necessity of any advertisement. In the case of monopoly, there is a single producer of the product. When a monopolist begins the production of a product, he may spend some amount on advertisement by way of information to the potential customers. Once the customers come to know of the product, expenditure on advertisement becomes superfluous. Under imperfect competition, it is not enough to give information about the product to the customers, rather they are to be reminded about the merits of the product again and again. Under monopolistic competition, therefore, selling costs are not merely informative but are essential for sales promotion and manipulation of demand. In short, sales promotion includes all those activities undertaken by a producer to increase the demand for his product. Selling Costs, therefore, refer to those costs which are incurred to increase the sale of the product, e.g. expenditure on the advertisement, publicity, salesmen, commission to retailers, gifts and concessions to customers, etc.

Definitions

According to Chamberlin, "Selling costs are costs incurred to alter the position or shape of the demand curve for the product."

In the words of Meyers, "Selling costs may be defined as costs necessary to persuade a buyer to buy one product rather than another or to buy from one seller rather than another."

According to Robert Awh, "Selling costs include all expenses incurred to increase the demand for the goods."

Assumptions

Selling costs are based on two assumptions: (i) Buyers' demand and taste can be changed; and (ii) Buyers do not have full knowledge about the different types of the product. Selling costs apprise the buyers of the conditions of the market, the superiority of the product, and similar other things. These costs help the firm increase the popularity of its product and attract new customers to it.

Difference between Selling Costs and Production Costs

There are fundamental differences between production costs and selling costs:

(i) Production costs are those costs which are incurred to make the commodity worthy of meeting the requirements of the customers. As a result of these costs, the commodity can satisfy the consumers. On the other hand, selling costs are those costs that help change the habits and tastes of the consumers. Their main aim is to attract customers...

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