Question

Explain the significance of the feature 'product differentiation' in monopolistic competition.

 

Answer 1

The product of a monopolistic firm is differentiated from the product of the other firm but are close substitute for each other. In other words, product differentiation implies that the products are similar to each other and perform the same basic function yet are different from each other in some or the other manner. The products are hypothetically differentiated from each other by the producers through advertisements. in terms of size, weight, quality, etc. A monopolistic firm incurs heavy selling costs such as advertisements expenses in order to distinguish the unique features of their product from the close substitutes available in the market. Differentiated product is one of the unique features of the monopolistic market structure. It is achieved through trademark or brand name.