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Question
Explain the implications of the following : Product differentiation in monopolistic competition.
Solution
Product differentiation in monopolistic competition:-
Monopolistic competition is a form of market in which there are many sellers of the product, but the product of each seller is different from one another. Products are differentiated through designs and colour of the packaging of the product. It attracts consumers to buy the product at a higher price level. As there are many rivals and close substitutes of products in the market, the monopolistic firm cannot have full control over the price. A monopolistic firm has partial control over price only through product differentiation. These products cause high elasticity of demand for the firm’s product because of the availability of a large number of close substitutes. Also, it paves the way to consumer exploitation through a higher price.
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