Question

firms with market power offer differentiated products in order to:

Answer 1

Answer) Firms with market power have reached that position for some reason which could be early move,capital, investment at right time but it want to retain that market power and share and one of the ways to do it is by offering differentiated products, in other words an entry barrier is being created and at the same time customers are being offered differentiated products so their dependence on this organization increases, we can understand it better with an example, suppose a firm starts producing organic immunity booster juices, market is less penetrated and company is making decent profits and soon has market share and market power, now all of a sudden a powerful capital intensive group looks to enter this industry, with high capital they can offer similar product at lesser rates,so the current market leader has very limited options ,strongest of which is to keep offering newer and differentiated products which are difficult for capital intensive group to mimic in short period and current market leader can retain its share.

So to conclude in order to retain market power and market share as well as deter the entry of other players, company with current market power keep offering differentiated products.

Answer is complete. Thank you!