Final answer:
Kalim could have avoided overpricing his product by conducting comprehensive market research that includes a pricing analysis, and understanding how price influences consumer perceptions of quality. By doing so, he could have better aligned his product's price with its perceived value to meet consumer expectations and reach an equilibrium price.
Step-by-step explanation:
Kalim could have avoided the problem of pricing his new food product too high by conducting thorough market research that includes not only the target market and industry growth but also a pricing analysis. This analysis would involve considering how buyers use market price to draw inferences about a product's quality, perhaps using focus groups or surveys to gain insights into the price sensitivity of his prospective customers. He should also have considered competitors' pricing strategies and assessed whether his product had unique features that justified a higher price.
In markets with imperfect information, prices can be especially influential because consumers may associate price with quality. For example, in a situation where used car dealers cut prices to increase sales, customers might assume the cars are of lower quality and avoid buying, which is not the desired outcome the dealer aims for. Conversely, higher prices might lead to an assumption of higher quality and more sales.
Ultimately, the relationship between price and perceived quality means that pricing decisions should be made with a careful consideration of how they will be interpreted by consumers. Kalim could adjust his pricing strategy accordingly or enhance the perceived value of his product to align with its price. Such an approach could help find a balance and potentially reach an equilibrium price that reflects the product's value and attracts buyers.