Question

Identify and describe the conditions you observed for Luxottica corporation which operates in Monopolistic Competition or a Differentiated Oligopoly who differentiates their product. You should also provide brief market analysis including the state of the market before and after the differentiation, as well as the observed changes that resulted. Specifically, the following questions should be addressed:

1. What type of market structure was the product or service in when the differentiation occurred?
2. What is the differentiation? Describe specifically what the differentiation was and tell us what that means for rational business price and production decisions.
3. What was the observed change in the equilibrium price in the market?
4. Evaluate the result of the observed change from perspectives of efficiency and equity drawing upon price/cost margins for your explanation.
5. Evaluate whether the decision to differentiate the product was a good move for that business at that time.

Answer 1

Monopolistic Condition (Product Differentiation): Differentiation of the products does not mean that different companies 'products are completely different. This simply implies that the goods of different companies are not homogeneous but closely connected.

1. State and market structure before and after differentiation: If there are various companies that manufacture identical goods, there is complete rivalry within the structure of the industry. However, if the companies take product differentiation their companies will be exposed to the rivalry of near competitors in a business state of monopoly.

2. Type of differentiation: Product distinction may be made in either of the form:

• Size: Items such as clothing, shoes, pizzas, economical, family-sized, large or extra large that distinguishes from one other product type.
• Design: Refrigerator, cupboards, scooters, cars are some of the products considered by buyers in keeping with their designs.
• Color: Consumers prefer consumers to textiles, ready-made clothes, plastic items, automobile by their colour.
• Taste and fragrance: The taste and scent are based on items such as pastries, toothpaste, soaps, cosmetics.

3. Shift in price and cost margins: As a result in product quality the business achieves brand loyalty and thus the profit is higher than the average total costs, which in a short term means that it receives super normal benefits. Margins of sales and prices remain the same as commodity price changes regardless of variation.

4. Product differentiation: Product differentiation allows the organization to receive from its goods a certain degree of customer loyalty. Brand loyalty allows businesses a certain degree of monopoly control to charge moderately high rates in the short term. It has any business to stand out that's why it is so important.

If you find the solution useful don't forget to upvote. Thank you!