product differentiation

Examples of product differentiation in the following topics:

• Product Differentiation

  • Oligopolies can form when product differentiation causes decreased competition within an industry.
  • Product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market.
  • This involves differentiating it from competitors' products as well as a firm's own products.
  • The major sources of product differentiation are as follows:
  • Explain the relationship between product differentiation and the existence of an oligopoly

• Product Differentiation

  • Product differentiation is the process of distinguishing a product or service from others to make it more attractive to a target market.
  • Marketing or product differentiation is the process of describing the differences between products or services, or the resulting list of differences; differentiation is not the process of creating the differences between the products.
  • Product differentiation is done in order to demonstrate the unique aspects of a firm's product and to create a sense of value.
  • Simple: the products are differentiated based on a variety of characteristics;
  • The major sources of product differentiation are as follows:

• Definition of Perfect Competition

  • Market structure is determined by the number and size distribution of firms in a market, entry conditions, and the extent of product differentiation.
  • Monopolistic competition: A market structure in which there is a large number of firms, each having a small portion of the market share and slightly differentiated products.
  • Oligopoly: An industry structure in which there are a few firms producing products that range from slightly differentiated to highly differentiated.
  • Products are homogeneous.
  • Both buyers and sellers have perfect information about the price, utility, quality, and production methods of products.

• Introduction to Firms with "Market Power"

  • If their product is (or can be differentiated), consumers may have a preference for one firm's output relative to others.
  • In many cases some producers try to differentiate their products.
  • If the firm has is no opportunity to differentiate their product they have no incentive to advertise and to try to influence the demand for their product.
  • If a product can be differentiated by altering the characteristics of the good or simply by convincing the consumers that the product is different, the firm achieves market power.
  • Advertising can be used to differentiate a product or increase the demand for a product.

• Demand Curve

  • In this type of market, these firms have a limited ability to dictate the price of its products; a firm is a price setter not a price taker (at least to some degree).
  • The source of the market power is that there are comparatively fewer competitors than in a competitive market, so businesses focus on product differentiation, or differences unrelated to price.
  • By differentiating its products, firms in a monopolistically competitive market ensure that its products are imperfect substitutes for each other.
  • Due to how products are priced in this market, consumer surplus decreases below the pareto optimal levels you would find in a perfectly competitive market, at least in the short run.
  • The suppliers in this market will also have excess production capacity.

• Defining Monopolistic Competition

  • Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another.
  • Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).
  • have products that are highly differentiated, meaning that there is a perception that the goods are different for reasons other than price;
  • The market power possessed by a monopolistic competitive firm means that at its profit maximizing level of production there will be a net loss of consumer and producer surplus.
  • The clothing industry is monopolistically competitive because firms have differentiated products and market power.

• Advertising and Brand Management in Monopolistic Competition

  • Advertising and branding help firms in monopolistic competitive markets differentiate their products from those of their competitors.
  • One of the characteristics of a monopolistic competitive market is that each firm must differentiate its products.
  • Reputation among consumers is important to a monopolistically competitive firm because it is arguably the best way to differentiate itself from its competitors.
  • Brands and advertising can thus help guarantee quality products for consumers and society at large.
  • Consumers might be hesitant to purchase products with which they are unfamiliar.

• Monopolistic Competition Compared to Perfect Competition

  • In both circumstances, the consumers are sensitive to price; if price goes up, demand for that product decreases.
  • Another key difference between the two is product differentiation.
  • In a perfectly competitive market products are perfect substitutes for each other.
  • But in monopolistically competitive markets the products are highly differentiated.
  • In fact, firms work hard to emphasize the non-price related differences between their products and their competitors'.

• Compensation Differentials

  • Some differences in wage rates across places, occupations, and demographic groups can be explained by compensation differentials.
  • More skilled and educated workers tend to have higher wages because their marginal product of labor tends to be higher .
  • The compensation differential ensures that individuals are willing to invest in their own human capital.
  • Not to be confused with a compensation differential, a compensating differential is a term used in labor economics to analyze the relation between the wage rate and the unpleasantness, risk, or other undesirable attributes of a particular job.
  • Hazard pay is a type of compensating differential.

• Absolute Advantage Versus Comparative Advantage

  • Absolute advantage refers to differences in productivity of nations, while comparative advantage refers to differences in opportunity costs.
  • Absolute advantage compares the productivity of different producers or economies.
  • Comparative advantage drives countries to specialize in the production of the goods for which they have the lowest opportunity cost, which leads to increased productivity.