Question

Provide an example of a firm or a small business from the real world that is surviving the dynamic nature of monopolistic competition, and discuss some approaches they have used (or are currently using) to compete and survive in the market.

Answer 1

A firm that comes to mind surviving the dynamic nature of a monopolistic competition could be a local Restaurant or a small food and beverage company or any small factory producing a common use good such as Wooden, plastic or metal products.

Some of the approaches they use:
1. Creating Product Differentiation in the minds of the consumer: Convincing them that their product/service is the best (by highlighting factors such as quality of product/service, new and improved variety of the product, ambience/finishing, multi-purpose utility, projecting the product as environment friendly, healthier etc.

2. Pricing competitively: Price would be somewhat different from the competitors, but in the similar range. Prices would not be increased easily even if other firms do so, but would be decreased if other firms reduce their prices

3. Creating barriers to entry for other firms by increasing specialisation, developing a comparative advantage, gaining control of resources, high marketing and advertisement costs etc.

4. Promoting customer loyalty through reward programmes, incentives, cash-backs etc so as to ensure customer retention

Let me know if I have missed out something