Question

How does economic rivalry take place in monopolistic competition? Describe the different aspects of product differentiation and price competition.

Answer 1

Monopolistic competition is a form of market structure in which there are a significant number of firms that produce similar but differentiated products— maybe 20, 50, or more. Because of low entry barriers, joining and leaving monopolistically competitive industries is relatively easy for businesses. The economic competition between competing firms is often strong in monopolistically competitive industries. Differentiation of goods is critical for companies operating under monopolistic market conditions. Industries often use non-price competition to differentiate between their goods and similar products. One way to do this is through ads to build brand loyalty.

Throughout advertising and economics, brand differentiation and cost discrimination are two techniques. Brand differentiation is the method of separating the goods and services of one company from the goods and services of another company. Price discrimination, on the other hand, is a technique for separating costs for the same goods and services.

Horizontal distinction of the product distinguishes a product based on one of the product's characteristics; however, customers can not differentiate which product has a higher quality. Vertical brand distinction is also dependent on one of a product's characteristics, but customers can discern which product is of higher quality. Simple product differentiation is based on a number of characteristics defining a product. Price discrimination takes place when the same goods and services are offered from the same business at different prices. Unlike product differentiation, the purpose of price discrimination is to pay different customers for the same products at different prices. Like product differentiation, the aim of price discrimination is not to differentiate the product from others.