Question

Briefly discuss what product differentiation may involve with regard to a monopolistic competitor?

Answer 1

The firms in the monopolistic competitions indulge in non-price competition and product differentiation. That means because of intense competition the product of the firms operating under the monopolistic competition is more or less same i.e. the price. But, the other features of the product like packaging, branding, marketing, and other non-price things differentiate the product.

For example, 10 firms operating in the monopolistic competitive market will have more or less the same price for their product. But the marketing the firms are doing for their product will show how their particular product is different from the product of other firms in the market. They will have a very different packaging, the taglines for introducing their product will be different, they will highlight some extra features of their product etc.

All these are the forms of non-price product differentiation which the firms in a monopolistic market indulge in.